The Propagation of Local Credit Shocks: Evidence from Hurricane Katrina

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See all articles by Samir Elsadek Mahmoudi

Samir Elsadek Mahmoudi

Georgia State University - Georgia State University, Andrew Young School of Policy Studies, Department of Economics, Students

Date Written: August 1, 2019

Abstract

A local credit shock, induced by hurricane Katrina, propagated through banks’ internal networks to produce real and credit markets’ effects in distant regions. Driven by abnormal mortgage and housing demand in Katrina-hit areas, financially constrained multi-market banks reallocated resources towards the damaged areas leading to a credit tightening in the undamaged local markets. Depending on their housing supply elasticity, local housing markets in the undamaged regions responded to this credit disruption with a mix of housing prices and housing supply declines. These spillovers depended on undamaged markets’ financial linkages to disaster areas. In the undamaged regions, community banks, being local and unexposed to disaster areas, partially insulated their markets from these spillovers.

Keywords: Banks’ Internal Capital Markets, Financial Networks and Spillovers, Credit disruptions and Housing Markets, Disaster Risk Exposure and Hurricane Katrina.

JEL Classification: G21, G32, H84 and R31

Suggested Citation

Elsadek Mahmoudi, Samir, The Propagation of Local Credit Shocks: Evidence from Hurricane Katrina (August 1, 2019). Available at SSRN: https://ssrn.com/abstract=

Samir Elsadek Mahmoudi (Contact Author)

Georgia State University - Georgia State University, Andrew Young School of Policy Studies, Department of Economics, Students ( email )

35 Broad Street
Atlanta, GA
United States

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