Economic impact of monetary policy: Focus on real estate sector in Italy

AuthorJacopo Zotti,Francesca Severini,Irfan Ahmed,Claudio Socci,Ali Medabesh
Date01 January 2021
DOIhttp://doi.org/10.1002/ijfe.1848
Published date01 January 2021
RESEARCH ARTICLE
Economic impact of monetary policy: Focus on real estate
sector in Italy
Irfan Ahmed
1
| Claudio Socci
2
| Ali Medabesh
1
| Francesca Severini
3
|
Jacopo Zotti
3
1
Department of Finance and Banking,
College of Business Administration, Jazan
University, Jizan, Saudi Arabia
2
Department of Economics and Law,
University of Macerata, Macerata, Italy
3
Department of Political and Social
Sciences, University of Trieste, Trieste,
Italy
Correspondence
Irfan Ahmed, Department of Finance and
Banking, College of Business
Administration, Jazan University, Jizan,
Kingdom of Saudi Arabia.
Email: irfana@jazanu.edu.sa, irfisam@
gmail.com
Abstract
This study investigates the nexus between financial market and real estate
(RE) sector against the backdrop of ECB's unconventional monetary policy. A
financial dynamic computable general equilibrium (DCGE) model is calibrated
on the financial social accounting matrix (FSAM) of Italian economy. The
findings confirm that the inclusion of financial intermediation into real econ-
omy affects the real estate sector's output, value added, and pricing.
KEYWORDS
CGE analysis, financial accounts, monetary policy, real estate sector, social accounting matrix
JEL CLASSIFICATION
E51; E52; G21
1|INTRODUCTION
There are widespread interactions between financial insti-
tutions and economic sectors of countries (Dakila,
Bayangos, & Ignacio, 2013). Real estate (RE) sector is one
of the economic sectors which present a nexus with the
financial market (Nobili & Zollino, 2017). These interac-
tions are characterized by the income circular flow
wherein final demand determines total output which leads
to the generation and distribution of domestic income and
finally the disposable income leaves the institutional sec-
tors on a vein to consume or to invest in the financial mar-
ket (Ciaschini, Pretaroli, Severini, & Socci, 2012). On the
other hand, the easy access of money also changes the
choices of the economic agents and effects their behaviour
of investment and consumption (Ahmed, Socci, Severini,
Yasser et al., 2018; Baker, Hollified, & Osambela, 2016;
Cesarini, Lindqvist, Ostling, & Wallace, 2016; Mian, Rao,
& Sufi, 2013). The trends in investment/consumption deci-
sions in turn activate the productivity of both manufactur-
ing and service sectors thereby affecting the level of
employment, prices and output, etc.
The recent years evidenced a noteworthy growth in Ital-
ian RE sector with a rise of 5.6% in total RE investments by
the year 2017 (CBRE, 2017). The residential properties
surged up respectively by 4.3 and 6.7% in metropolitan cities
and small municipalities while the business properties grew
by 4.7 and 7.8% in metropolitan and small municipalities
respectively.
1
This growth is vital to the aggregate Italian
economy since the RE is a key sector for Italy and hence it
can stimulate the production of other sectors (backward
linkage), and can promptly respond to the demand of other
sectors (forward linkage) (Ciaschini & Socci, 2007). Keeping
in view the aforementioned RE growth and its strong con-
nections with other sectors of economy, this study quantifies
the impact of money flow on the performance of RE sector
in the implementation of the monetary policy by European
Central Bank (ECB). The analysis is carried out using a
dynamic computable general equilibrium (DCGE) model
based on the Financial Social Accounting Matrix (FSAM).
This set of instruments is recognized by the current litera-
ture as a valid tool to quantify the impact of both fiscal and
monetary policies because it allows tracking the policy
transmission mechanisms through the phases of the income
Received: 8 June 2018 Revised: 1 March 2020 Accepted: 18 June 2020
DOI: 10.1002/ijfe.1848
1256 © 2020 John Wiley & Sons, Ltd. Int J Fin Econ. 2021;26:12561269.wileyonlinelibrary.com/journal/ijfe

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