Policy Uncertainty and Bank Mortgage Credit
43 Pages Posted: 9 Jan 2019
Date Written: December 26, 2018
We examine the effect of policy uncertainty on banks' supply of jumbo mortgage credit using the timing of U.S. gubernatorial elections as a source of plausibly exogenous variation in policy uncertainty. We document that banks reduce lending both in their headquarter states and outside when their headquarter state holds gubernatorial elections. The mortgage lending cycle around elections is more pronounced for more uncertain elections and for state-chartered banks. Overall, the findings suggest that policy uncertainty has a real effect on residential housing markets through banks' credit supply and can spill over across states through lending by banks serving multiple states.
Keywords: Bank Mortgage Credit, Housing Market, Policy Uncertainty, Gubernatorial Elections
JEL Classification: G21, G28
Suggested Citation: Suggested Citation