We document a novel transmission channel of monetary policy through the homeowners insurance market. On average, contractionary monetary policy shocks result in higher homeowners insurance prices. Using granular data on insurers' balance sheets, we show that this effect is driven by the interaction of financial frictions and the interest rate sensitivity of investment portfolios. Specifically, rate hikes reduce the market value of insurers' assets, tightening insurers' balance sheet constraints and increasing their shadow cost of capital. These frictions in insurance supply amplify the effects of monetary policy on real estate and mortgage markets by making housing less affordable. We find that monetary policy shocks have a stronger impact on home prices and mortgage applications when local insurers are more sensitive to interest rates. This channel is particularly pronounced in areas where households face high climate risk exposure. Our findings highlight the role of insurance markets in amplifying macroeconomic shocks and the interconnections between homeowners insurance, residential real estate, and mortgage lending.

We examine a policy reform that moved supervision for a subset of bank branches in China from the national to the prefecture level. Following the reform, these branches were 57 to 80% more likely to receive an enforcement action. The tighter local supervision results in more conservative lending by banks, reducing in turn aggregate loan supply in prefectures with more branches affected by the reform. We provide evidence for information gains under local supervision, outweighing distortions due to biases of local supervisors. Overall, our results emphasize the role of local information in the design of supervisory architectures.

We analyze the equilibrium effects of a highly popular class of retail structured products that embed a sale of put options, which we term short-put products. Empirically, we document that both the headline rate offered by these products and their issuance volume are positively correlated with the realized volatility of the underlying asset. In turn, greater issuance of short-put products predicts lower implied volatility, controlling for realized volatility, with a stronger relationship at lower moneyness levels.

To quantify the asset pricing implications of these products, we develop and estimate a structural model in which households underweight left-tail risk, leading to a robust demand for short-put products. Financial intermediaries optimize the headline rate while imperfectly hedging their exposure. This household demand exerts downward pressure on option prices, particularly at strikes below 100%. Consequently, when realized volatility rises, increased demand for short-put products dampens the corresponding increase in volatility prices. Our findings highlight the role of household preferences in shaping volatility price dynamics through demand for securities with non-linear payoffs.