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The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel

Jie Gan

Title:
The Real Effects of Asset Market Bubbles: Loan- and Firm-Level Evidence of a Lending Channel
Author(s):
Gan, Jie
Date:
Type:
Working papers
Department:
Center on Japanese Economy and Business
Permanent URL:
Series:
Center on Japanese Economy and Business Working Papers
Part Number:
255
Publisher:
Center on Japanese Economy and Business, Graduate School of Business, Columbia University
Publisher Location:
New York
Abstract:
This paper studies how a shock to the financial health of banks, caused by a decline in the asset markets, affects the real economy. The land-market collapse in Japan provides an ideal testing field in separating the impact of a loan supply shock from demand shocks. I find that banks with greater real estate exposure have to reduce lending. Firms' investment and market valuation are negatively associated with their top lender's real estate exposure. The lending channel is economically important: it accounts for one-third of lending contraction, one-fifth of the decline in investment, and a quarter of value loss.
Subject(s):
Finance
Banking
Item views:
241
Metadata:
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