Credit Expansion, Competition, and House Prices

45 Pages Posted: 3 Sep 2016 Last revised: 17 Nov 2016

See all articles by Xudong An

Xudong An

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Date Written: November 16, 2016

Abstract

We document the effect of policy-induced credit supply on fueling asset prices that lead to financial crises and broad economic outcomes. By comparing loans that fall under the current conforming loan limit (CLL) to those under the old limit last year in a difference-in-differences setting, we find a direct effect of CLL change on credit supply and on the prices of homes financed by the expanded credit. An increase in credit supply in the new conforming loan market also crowds out private capital in the jumbo loan market. Additionally, we find significant effects of CLL change on broad economic outcomes, such as regional home prices, employment, and business growth.

Keywords: Conforming loan limit; credit supply; financial crisis

JEL Classification: D12; G10; R20

Suggested Citation

An, Xudong and Yao, Vincent, Credit Expansion, Competition, and House Prices (November 16, 2016). Available at SSRN: https://ssrn.com/abstract=2833542 or http://dx.doi.org/10.2139/ssrn.2833542

Xudong An

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Vincent Yao (Contact Author)

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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