This paper studies the effects of monetary policy on housing rents. We provide comprehensive measures of rent inflation at a micro-geographic scale by constructing a new repeat-rent index. Using our rent index, we estimate the impulse responses of rents to monetary policy shocks. We find that, on average, monetary tightening increases rents. The effect is driven by a shift in demand from the owner-occupied market to the rental market. Areas where household borrowing constraints are more binding, where renter and owner markets are more segmented, and where landlords are more levered experience greater rent increases following the same contractionary shock.

Media: Columbia

This paper studies how monetary policy affects housing rents in a dynamic stochastic general equilibrium (DSGE) model with heterogeneous households, collateral constraints, and costly reallocation of housing between owner- and renter-occupied sectors. A monetary tightening reduces credit access and shifts housing demand from ownership toward renting. Whether rents rise or fall depends on the strength of this demand shift and on the extent to which landlords absorb it by expanding rental supply, which is governed by the degree of housing market segmentation. Estimating the model using quarterly U.S. data, I reproduce the empirically observed rise in rents following a contractionary monetary policy shock. Because this rent increase reflects a relative-price adjustment driven by the reallocation of demand across tenure types, rather than generalized excess demand, Taylor rules that target shelter-inclusive inflation overreact and reduce welfare. Rules that exclude shelter deliver a weak Pareto improvement, while rules that respond separately to goods inflation and relative shelter prices deliver larger, but more unevenly distributed, aggregate gains.