Landier, Augustin, Sraer, David and Thesmar, David (2013) Banking Deregulation and The Rise in House Price Comovement. TSE Working Paper, n. 13-437, Toulouse

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Abstract

This paper documents a steady increase in the average correlation of house price
growth across US states over the 1976-2006 period and shows that this phenomenon can
be explained in large part by the geographic integration of the banking market over
this period. We theoretically derive an appropriate measure of banking integration
across state pairs and document that the cross section of state pair correlations is
strongly related to this measure of financial integration. We then use bilateral cross
state banking deregulations to instrument banking integration of a state pair. Using
our IV estimates, we find that financial integration of the US banking market explains
about 25% of the rise of the average home price correlation over the period.