Policy Uncertainty and Bank Mortgage Credit

43 Pages Posted: 9 Jan 2019

See all articles by Gazi Kara

Gazi Kara

Board of Governors of the Federal Reserve System

Youngsuk Yook

Board of Governors of the Federal Reserve System

Date Written: December 26, 2018

Abstract

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

Kara, Gazi and Yook, Youngsuk, Policy Uncertainty and Bank Mortgage Credit (December 26, 2018). Available at SSRN: https://ssrn.com/abstract=3306884 or http://dx.doi.org/10.2139/ssrn.3306884

Gazi Kara (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Youngsuk Yook

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-475-6324 (Phone)

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