Collateral Damage: Effects of the Japanese Real Estate Collapse on Credit Availability and Real Activity in the United States

Federal Reserve Bank of Boston WP No. 97-5

45 Pages Posted: 2 May 1998

See all articles by Joe Peek

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Date Written: September 1997

Abstract

The dramatic 70 percent decline in Japanese commercial real estate prices from their peak in 1990 provides a natural experiment to test the extent to which a loan supply shock can affect real economic activity. Because the shock was external to U.S. credit markets, yet connected through the substantial penetration of U.S. lending markets by Japanese banks, this event allows us to identify an exogenous loan supply shock and ultimately link that shock to construction activity in major commercial real estate markets in the United States. We use panel data that exploit the variation across geographically distinct commercial real estate markets in the United States, both in degree of Japanese bank penetration and in local demand conditions, to establish conclusively that loan supply shocks emanating from loan problems in Japan had real effects on economic activity in the United States.

JEL Classification: F30, G21

Suggested Citation

Peek, Joe and Rosengren, Eric S., Collateral Damage: Effects of the Japanese Real Estate Collapse on Credit Availability and Real Activity in the United States (September 1997). Federal Reserve Bank of Boston WP No. 97-5. Available at SSRN: https://ssrn.com/abstract=82728 or http://dx.doi.org/10.2139/ssrn.82728

Joe Peek

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Eric S. Rosengren (Contact Author)

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

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