The only effect of a restrictive monetary policy is to create a real estate crisis

The ineffectiveness of a restrictive monetary policy in combating inflation is that the main effect of such a policy is to trigger a real estate crisis, not to curb overall demand for goods and services. Given the relatively low weight of construction (and related industries) in GDP, a fall in real estate investment is not sufficient to trigger a significant fall in overall domestic demand, and hence a fall in inflation. This concentrated effect of a restrictive monetary policy on real estate investment stems from the fact that this investment depends on nominal long-term interest rates, not real long-term interest rates, since the borrowing capacity of potential real estate buyers is measured in relation to their current income, and not in relation to their expected long-term income.