Our results suggest that both monetary policy and capital in ows shocks have a signi cant and positive effect on house prices, credit to the private sector and residential investment. The effects of both shocks are greater in countries with a higher degree of mortgage market development, with the effect of monetary policy shocks roughly doubling. This suggests that excessive nancial innovation may act as a propagation mechanism. The existence of mortgage-backed securities has a much larger effect on the transmission of capital in ows shocks. Legislation permitting the issuance of mortgage-backed securities increases the impact of capital in ows shocks on real house prices, real residential investment and real credit.
