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Holes in the dike: the global savings glut, U.S. house prices and the long shadow of banking deregulation


Hoffmann, Mathias; Stewen, Iryna (2019). Holes in the dike: the global savings glut, U.S. house prices and the long shadow of banking deregulation. Journal of the European Economic Association, (jvz045):Epub ahead of print.

Abstract

We show how capital inflows into and financial deregulation within the United States interacted in driving the recent boom and bust in U.S. housing prices. Interstate banking deregulation during the 1980s cast a long shadow: in states that opened their banking markets to out-of-state banks earlier, house prices were more sensitive to aggregate U.S. capital inflows during 1997-2012. Capital inflows relaxed the value-at-risk constraints of geographically diversified ("integrated") U.S. banks more than those of local banks. Therefore, integrated banks absorbed a larger share of capital inflows and expanded mortgage lending more. This drove up housing prices.

Abstract

We show how capital inflows into and financial deregulation within the United States interacted in driving the recent boom and bust in U.S. housing prices. Interstate banking deregulation during the 1980s cast a long shadow: in states that opened their banking markets to out-of-state banks earlier, house prices were more sensitive to aggregate U.S. capital inflows during 1997-2012. Capital inflows relaxed the value-at-risk constraints of geographically diversified ("integrated") U.S. banks more than those of local banks. Therefore, integrated banks absorbed a larger share of capital inflows and expanded mortgage lending more. This drove up housing prices.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:G10, G21, G28, F20, F32, F40
Uncontrolled Keywords:House prices, global imbalances, interstate banking deregulation
Language:English
Date:September 2019
Deposited On:25 Jul 2019 13:21
Last Modified:11 Feb 2020 08:09
Publisher:Oxford University Press
Number of Pages:29
ISSN:1542-4766
OA Status:Closed
Publisher DOI:https://doi.org/10.1093/jeea/jvz045
Official URL:https://www.eeassoc.org/index.php?site=JEEA&page=55&trsz=53

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