IMF Working Papers

This paper investigates the nexus between persistent house price increases and productivity growth in Canada, focusing on the collateral channel. We first present a stylized model explaining the mechanism of the colleteral channel. Using detailed firm-level data spanning from 2000 to 2023, the empirical analysis finds a negative correlation between firm productivity and its real estate holdings. Furthermore, rising house prices dampen investment for firms with fewer tangible assets but stimulate investment for those with more. At the industry level, while overall productivity may increase with rising house prices on average, industries with significant tangible asset holdings exhibit an opposite trend, suggesting potential resource misallocation associated with persistent housing market boom.