Policy Uncertainty and Bank Mortgage Credit

50 Pages Posted: 12 Nov 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

Multiple version iconThere are 3 versions of this paper

Date Written: October 16, 2019

Abstract

We show that banks reduce the supply of jumbo mortgage loans when policy uncertainty increases, as measured by the timing of US gubernatorial elections in banks' headquarter states. We use high-frequency, geographically granular loan-level data to address an identification problem arising from the changing demand for loans: (1) The data allow for a difference-in-difference specification and for state/time (quarter) fixed effects; (2) we observe banks reduce lending not just in their home states but also outside their home states when their home states hold elections; (3) we observe important cross-sectional differences in the way banks with different characteristics respond to policy uncertainty. Overall, the findings suggest that policy uncertainty has a real effect on residential housing markets through banks' credit supply decisions and that it 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 (October 16, 2019). BIS Working Paper No. 820. Available at SSRN: https://ssrn.com/abstract=3485210

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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