Holes in the Dike: The Global Savings Glut, U.S. House Prices and the Long Shadow of Banking Deregulation

49 Pages Posted: 4 Feb 2016 Last revised: 9 Feb 2016

Mathias Hoffmann

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Iryna Stewen

University of Mainz - Gutenberg School of Economics and Management

Multiple version iconThere are 3 versions of this paper

Date Written: February 2, 2016

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 1990-2012. 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.

Keywords: house prices, global imbalances, interstate banking deregulation

JEL Classification: G10, G21, G28, F20, F32, F40

Suggested Citation

Hoffmann, Mathias and Stewen, Iryna, Holes in the Dike: The Global Savings Glut, U.S. House Prices and the Long Shadow of Banking Deregulation (February 2, 2016). CAMA Working Paper No. 6/2016. Available at SSRN: https://ssrn.com/abstract=2726923 or http://dx.doi.org/10.2139/ssrn.2726923

Mathias Hoffmann (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Iryna Stewen

University of Mainz - Gutenberg School of Economics and Management ( email )

Mainz
Germany

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