Event_
The Credit Channel of Monetary Policy Transmission: Evidence From the Chonsei System
Aug 11, 2023 11:00 am - 12:30 pm
AEST
The University of Sydney
Abstract
This paper analyzes the credit channel of monetary policy transmission in a unique institutional setting: the Chonsei system in the Korean housing market, where rental tenants make interest-free loans to landlords in exchange for paying no rent. As Chonsei interest rates approach zero, the size of Chonsei loans grows unboundedly, exerting strong upwards pressure on house prices. We verify the model’s predictions empirically. Calibrating the model to the data, we find that a simple policy – imposing a proportional tax on Chonsei deposits – substantially dampens the passthrough of interest rate changes to deposit size and house prices, potentially improving financial stability.