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House prices and misallocation: The impact of the collateral channel on productivity

Author

Listed:
  • Sergi Basco

    (Universitat de Barcelona)

  • David López-Rodríguez

    (Banco de España)

  • Enrique Moral-Benito

    (Banco de España)

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.

Suggested Citation

  • Sergi Basco & David López-Rodríguez & Enrique Moral-Benito, 2021. "House prices and misallocation: The impact of the collateral channel on productivity," Working Papers 2135, Banco de España.
    • Handle: RePEc:bde:wpaper:2135
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/21/Files/dt2135e.pdf
    File Function: First version, September 2021
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    References listed on IDEAS

    as
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    Cited by:

    1. Tang, John P. & Basco, Sergi, 2023. "Banks, credit supply, and the life cycle of firms: Evidence from late nineteenth century Japan," Journal of Banking & Finance, Elsevier, vol. 154(C).

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    More about this item

    Keywords

    housing boom; misallocation; collateral channel; productivity;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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