Unintended Consequences of QE: Real Estate Prices and Financial Stability

Département: Finance

Intervenant: Tobias Berg (Goethe University Frankfurt) 

Salle: T015

Abstract

We analyze the effects of central bank corporate debt purchases in a credit-saturated
economy. Banks reallocate marginal funding almost entirely toward real estate lending,
re ecting a demand-elasticity channel whereby additional credit  ows to sectors with
returns clustered near the cost of capital. This reallocation generates pronounced real
estate price increases, with the credit supply elasticity of real estate prices substantially
exceeding prior estimates, and impairs  nancial stability. Our  ndings show that in
economies that do not suffer from credit supply frictions, central bank policies that
further stimulate loan provision come with substantial adverse effects.