New paper in JEEA
Our paper “ Holes in the Dike: The Global Savings Glut, U.S. House Prices and the Long Shadow of Banking Deregulation” (with Iryna Stewen) is now forthcoming in the Journal of the European Economic Association.
In the paper, we argue that capital inflows into the U.S. greatly contributed to the housing boom in the years prior to the financial crisis. States that liberalized their banking markets earlier saw bigger run-ups in house prices (and larger busts). The reason for this was the treacherous assumption, that geographically diversified banks should be allowed higher leverage (as would be implied by value-at-risk (VaR) models of bank risk management). States that liberalized their banking markets earlier had a stronger presence of geographically diversified banks by the time the savings glut started to hit the U.S. from the mid-1990s onwards. As we show, using bank-level data, the lending of geographically diversified banks was more sensitive to aggregate capital inflows and counties and states in which these banks had higher market shares saw a bigger expansion of mortgage credit and bigger house price increases.
Mathias Hoffmann is Professor at the Department of Economics at the University of Zurich. His research focuses on the macroeconomic aspects of international financial integration and on the link between financial markets and the macro-economy more generally. His recent published articles include papers on the determinants of international capital flows and imbalances, the international transmission of business cycles, on international risk sharing, banking regulation, and housing markets. Prior to arriving in Zurich, he was Professor at the University of Dortmund in Germany and a Lecturer at Southampton University (UK). He holds a PhD in Economics from the European University Institute in Florence and obtained his undergraduate education in economics and mathematics at WHU School of Management, Brandeis University and the University of Bonn.
Mathias Hoffmann is affiliated with the University of Zurich’s research priority program in financial regulation (URPPP FinREG), a fellow of CESifo Munich and of the Centre for Applied Macroeconomic Analysis (CAMA) at the Australian National University, and has held visiting positions at the University of California at Berkeley, the Deutsche Bundesbank, the Bank of Finland, the Hong Kong Monetary Authority, the Bank for International Settlements, Norges Bank, Keio University and Stanford University.