The dominant risks in the interest rate channel: evidence from the urban housing market in Taiwan.

The main purpose of this paper is to investigate the city-level data on mortgage rates of banks which may hide significant information about the monetary transmission mechanism. This study, by regional housing loans and risks data, investigates the behaviour of banks after a monetary policy tightening. By using the structural vector autoregressive model with the counterfactual impulse response function and the spatial regression model, our results show that monetary tightening causes mortgage rates to rise. This response is mainly driven by price and credit risks. Consequently, these housing activities have a significant effect on mortgage rates, by amplifying the shock from the tightening monetary policy. The latter result provides evidence that financial intermediation and regional housing risks play an important role in the interest rate channel. [ABSTRACT FROM AUTHOR]