Homeownership, Informality and the Transmission of Monetary Policy

C. Elgin, R.B. Uras

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Abstract

Cross-country aggregate data exhibits a strong (positive) relationship between the size of the informal employment and aggregate homeownership rates. We investigate this empirical observation using a cash-in-advance model with housing markets and and argue that the rate of inflation is important in explaining the nexus between informality and homeownership rates. Specifically, we uncover a novel monetary transmission mechanism and show that households with informal employment desire to economize on their short-term cash usage and avoid periodic rental payments when (i) informality is associated
with constrained business investment nance, and (ii) inflation expectations are high. Our empirical and theoretical findings highlight an important interaction between the conduct of monetary policy and the performance of housing markets.
Original languageEnglish
Place of PublicationTilburg
PublisherEBC
Number of pages26
Volume2014-005
Publication statusPublished - 27 Aug 2014

Publication series

NameEBC Discussion Paper
Volume2014-005

Keywords

  • cash-in-advance
  • informality
  • cross-country data
  • monetary transmission

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