The comprehensive analysis across theoretical, empirical, and policy-oriented frameworks underscores the intricate interplay between monetary policy, housing markets, and financial constraints in both closed and small open economies.
Chapter 2 systematically synthesizes the theoretical and empirical literature on monetary policy, housing markets, and financial frictions, exposing critical limitations in conventional frameworks and paving the way for methodological advancements in subsequent chapters. The analysis established that traditional inflation-targeting frameworks inadequately address housing market volatility, as collateral constraints and the zero lower bound (ZLB) introduce nonlinear dynamics and asymmetries. These frictions amplify economic fluctuations, particularly during crises, by creating feedback loops between housing prices, borrowing capacity, and aggregate demand. The chapter further highlighted the critical role of heterogeneity in household responses, where savers and borrowers exhibit divergent behaviors to monetary shocks, necessitating models that capture distributional effects.
Chapter 3 examines the transmission mechanisms and distributional consequences of quantitative easing (QE) in a small open economy, leveraging a dynamic stochastic general equilibrium model calibrated to New Zealand’s pandemic conditions. By embedding financial frictions—notably borrowing constraints tied to housing collateral—and imperfect asset substitutability, the analysis isolates the portfolio rebalancing channel as the dominant driver of housing market dynamics during unconventional monetary interventions. While QE effectively stabilized financial markets during the pandemic, it exacerbated wealth inequality by inflating housing prices, disproportionately benefiting asset-holding savers while leaving credit-constrained borrowers vulnerable to debt overhangs and exchange rate risks. The open-economy dimension revealed unique vulnerabilities, as capital flow volatility and currency depreciation pressures complicated policy trade-offs between financial stability and inflation control.
Chapter 4 advances a unified framework to dissect the systemic interdependencies between housing markets, labor markets, and monetary policy in economies plagued by financial frictions. By embedding search-and-matching frictions, occasionally binding collateral constraints, and the zero lower bound within a DSGE model, the analysis uncovers the nonlinear, asymmetric propagation of shocks that define housing-driven business cycles. The calibrated results demonstrate how housing price dynamics and labor market adjustments interact through credit and income channels, creating self-reinforcing feedback loops that amplify downturns and prolong recoveries.
