Unconventional Monetary Policy in Scandinavia: A Local Projection Analysis of House Prices

Abstract: This paper investigates the spillover effects of unconventional and conventional monetary policy measures on house prices in Denmark, Norway, and Sweden. Two notable results were found using the local projections method and data, including the years of the Covid Pandemic and the Invasion of Ukraine. The first result revealed that policy rate and total asset shocks had spillover effects on house prices in the initial and intermediate periods. Nevertheless, only the unconventional policy shock affected house prices through its corresponding transmission mechanism. The impact of unconventional monetary policy measures on mortgage interest rates was significant in Norway, while Sweden and Denmark exhibited insignificant results. The second result implied a delayed effect on house prices, where the unconventional policy shock positively affected house prices at the end of the period. In contrast, the conventional policy shock had a negative effect. However, these results were insignificant and had to be carefully interpreted. The findings of this paper highlight the effect of unconventional measures on house prices and emphasize the need for policymakers to consider the effects on the housing market when implementing monetary policies.