The effect of bank credit on asset prices: Evidence from the Japanese real estate boom during the 1980s

This paper studies whether bank credit fuels asset prices. I show that I have an instrument for the supply of real estate loans. Financial deregulation during the 1980s allowed keiretsus to obtain finance publicly and reduce their dependence on banks. Banks that lost these blue-chip customers increased their property lending. Using this instrument I find that a 0.01 increase in a prefecture's real estate loans as a share of total loans causes 14-20% higher land inflation compared to other prefectures over the 1981-1991 period. The timing of losses also coincides with subsequent land inflation in a prefecture