House Prices and Misallocation: The Impact of the Collateral Channel on Productivity

78 Pages Posted: 23 Sep 2021

See all articles by Sergi Basco

Sergi Basco

Universitat Barcelona

David Lopez Rodriguez

Banco de España

Enrique Moral-Benito

Banco de España; Charles III University of Madrid

Date Written: September 21, 2021

Abstract

This paper empirically investigates the impact of local house price booms on capital misallocation within manufacturing industries. Using the geographic variation provided by the salient Spanish housing boom (2003-2007), we show that manufacturing firms exposed to positive local house price shocks received more credit from banks and their investment grew more intensively when they had a larger proportion of collateralizable real estate assets. We exploit the geographical variation in both house prices and pre-boom urban land supply at municipality level to document that this collateral channel was exacerbated for firms located in urban land-constrained geographical areas where real estate appreciation was larger. The interaction of geographical conditions, that led to heterogeneous housing booms, with the collateral channel on investment resulted in an increasing dispersion of the capital-labor ratio within industries. A simple counterfactual calculation suggests that the misallocation generated by the collateral channel on investment could account for between one-quarter and half of the fall in TFP experienced in the Spanish manufacturing sector over the housing boom.

Keywords: housing boom, misallocation, collateral channel, productivity

JEL Classification: E22, E44, O16, 047

Suggested Citation

Basco, Sergi and Lopez Rodriguez, David and Moral-Benito, Enrique, House Prices and Misallocation: The Impact of the Collateral Channel on Productivity (September 21, 2021). Banco de Espana Working Paper No. 2135, Available at SSRN: https://ssrn.com/abstract=3927727 or http://dx.doi.org/10.2139/ssrn.3927727

Sergi Basco (Contact Author)

Universitat Barcelona ( email )

Barcelona
Spain

David Lopez Rodriguez

Banco de España ( email )

Alcala 48
Madrid, 28014
Spain

HOME PAGE: http://sites.google.com/site/davidlopezrodriguezphd/home

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

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