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Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
Fracking and Mortgage Default
Chris Cunningham
Kristopher S. Gerardi
Yannan Shen
Abstract

This paper finds that increased hydraulic fracturing, or "fracking," along the Marcellus Formation in Pennsylvania had a significant, negative effect on mortgage credit risk. Controlling for potential endogeneity bias by utilizing the underlying geologic properties of the land as instrumental variables for fracking activity, we find that mortgages originated before the 2007 boom in shale gas, were, post-boom, significantly less likely to default in areas with greater drilling activity. The weight of evidence suggests that the greatest benefit from fracking came from strengthening the labor market, consistent with the double trigger hypothesis of mortgage default. The results also suggest that increased fracking activity raised house prices at the county level.


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Chris Cunningham & Kristopher S. Gerardi & Yannan Shen, Fracking and Mortgage Default, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2017-4, 01 Mar 2017.
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Keywords: mortgage default; hydraulic fracking; house prices; shale gas
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