The crowding out channel: Housing boom and investment in China

We develop a novel mechanism that captures the negative co-movements between housing prices and investment in China by incorporating the crowding out channel into a NK-DSGE model. Through this channel, a credit-driven housing boom stimulates constrained commercial banks to allocate more credit to the unproductive household sector instead of entrepreneur sector, crowding out corporate investment.

Automated summary

The study reveals that a credit-driven housing boom in China leads to a crowding out effect on corporate investment, as constrained commercial banks tend to allocate more credit to the non-productive household sector.