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Risks to Financial Stability in the Low Interest Rate Environment and its Housing Market Implications: CE Region Study
Meti, Elvira ; Geršl, Adam (advisor) ; Polák, Petr (referee)
iv Abstract The current state of the prolonged low interest rate environment may pose a great threat to the soundness of the financial system both in the eurozone countries as well as in the neighboring regions, such as in countries of Central Europe due to high interconnectedness of markets. Some of the recently identified risks of the low interest rate environment are a notable pickup in mortgage lending and house prices, and deterioration of profitability among banks. We study these channels for the Czech Republic, Hungary and Poland, investigating the impact of the imported ECB monetary policy on local (hos countries) during 2004Q4-2019Q4. Our findings suggest that house prices are further driven by low interest rates, and the effect is lagged by two quarters as looser monetary conditions need time to impact our dependant variables. Furthermore, a decrease in the mortgage rate increases mortgage lending in these countries. Lastly, in our study of 27 banks during 2004-2015, we find that ROAA declines by approximately by 17.8 %, given a one percent increase in the 3-month EURIBOR. Keywords low interest rates, EURIBOR, financial soundness, GMM, residential property, mortgages Author's e-mail 71263908@fsv.cuni.cz Supervisor's e-mail Adam.gersl@gmail.com
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