Abstract:This paper analyzes how the spatial structure of housing affects monetary policy transmission. I integrate spatial structure into a monetary business cycle model. Spatial structure matters economically through households' location preferences and residential externalities. These features are reflected in two measures of residential concentration. Higher residential concentration dampens consumption responses to interest rate changes through housing demand channels. Using geospatial data based on satellite imagery, I measure residential concentration for US and Eurozone regions. I empirically validate the model's predictions in a state-dependent local projections framework. My paper identifies residential concentration as a fundamental determinant of monetary policy transmission.
Abstract: This paper examines the relationship between location, liquidity, and prices in housing markets. We construct spatial datasets for German and US cities and show that liquidity and prices decline with distance to the city center. To rationalize these patterns, we develop a spatial model of housing search. Location preferences concentrate buyers in central areas, generating tighter markets that are more liquid and command higher prices. Counterfactuals show that increasing search efficiency raises welfare and prices, especially in peripheral areas. Our findings highlight the importance of demand-side preferences and market tightness for understanding liquidity and asset prices.
