Seminarios Académicos

Abstract: An unprecedented credit boom that began in the early 2000s was a central cause behind the global financial crisis. Both a housing boom and a relaxation of lending constraints that unlocked an aggressive channeling of funds to the mortgage market (the financial intermediary channel) were key determinants of the credit boom. However, little is known about the relative roles played by each factor. This paper provides a novel empirical strategy to shed light on this issue. Using a natural experiment tied to the rise in the PLS market, I show that both channels played a significant role in amplifying the rise in credit. In the preferred specification, the housing channel accounts for 51% of the observed amplification. Both the amount of amplification and the proportion explained by the housing channel are larger (66%) in areas with more inelastic land supply. Regions with very elastic land supply still display significant regional credit multipliers thanks to the financial intermediary channel, which accounts for 71% of the effects. Thus, both channels are essential to understand the drastic and geographically pervasive growth of credit during this episode.