By considering banks as portfolios of assets in different locations, we study how real estate shocks get amplified across bank's business areas while controlling for local demand shocks and bank location–specific factors. Affected banks substantially alter their loan portfolios: we find...

A reduction in inflation can fuel run-ups in housing prices if people suffer from money illusion. For example, investors who decide whether to rent or buy a house by simply comparing monthly rent and mortgage payments do not take into account that inflation lowers future real mortgage costs. We...