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Credit Supply and the Price of Housing

Author

Listed:
  • Giovanni Favara

    (Boards of Governors of the Federal Reserve System)

  • Jean Imbs

    (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

An exogenous expansion in mortgage credit has significant effects on house prices. This finding is established using US branching deregulations between 1994 and 2005 as instruments for credit. Credit increases for deregulated banks, but not in placebo samples. Such differential responses rule out demand-based explanations, and identify an exogenous credit supply shock. Because of geographic diversification, treated banks expand credit: housing demand increases, house prices rise, but to a lesser extent in areas with elastic housing supply, where the housing stock increases instead. In an instrumental variable sense, house prices are well explained by the credit expansion induced by deregulation.

Suggested Citation

  • Giovanni Favara & Jean Imbs, 2015. "Credit Supply and the Price of Housing," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01301589, HAL.
  • Handle: RePEc:hal:cesptp:hal-01301589
    DOI: 10.1257/aer.20121416
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01301589
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    More about this item

    Keywords

    credit; house prices;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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