Bank lending behavior and housing market booms: The Australian evidence

Abstract

The emerging literature on bank lending during an asset price boom has focused on the U.S. economy before the GFC when the housing market peaked. Following this line of research, this paper studies the Australian economy with its unique banking industry and sustained housing market boom. Results from the single equation and the panel vector autoregression (PVAR) show evidence of crowding out of business loans towards housing loans in response to increased opportunities in strong housing markets, which in turn curtails business investment. In contrast to Chakraborty et al. (2018), such a crowding-out effect is evident only in the Big Four banks, which are dominant and less capital constrained..