Building on easy money:The political economy of housing bubbles in Ireland and Spain
AbstractThis paper undertakes a structured, focused case-study comparison of housing bubbles in Ireland and Spain, based on the selection of two most-different cases that nonetheless share a common outcome of interest. Both countries were exposed to the same set of changes in their international policy environment in the late 1990s and early 2000s, in the form of a low interest rate regime associated with the creation of European Monetary Union (EMU). The two countries have very different economic structures, different political decision-making profiles, and different relationships between the political and banking systems. Yet these two countries had the most extreme experience of housing bubbles during the 200os, and both suffered a similar construction-related economic collapse that ruined their respective banking systems after 2008. The paper argues that the decision-making taking place within their very different domestic institutional frameworks was subordinated to the fact that they shared a similar form of international vulnerability. Both were extremely open to mobile international capital during the 2000s. Their vulnerability to financialization resulted in a common experience of very rapid asset price inflation, which left both countries particularly exposed when the international financial collapse took place. The shared experience of European ‘peripherality’ meant that two countries belonging to different ‘varieties of capitalism’ ended up with very similar kinds of economic collapse.
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Bibliographic InfoPaper provided by Geary Institute, University College Dublin in its series Working Papers with number 201318.
Length: 57 pages
Date of creation: 08 Oct 2013
Date of revision:
housing bubbles; financial liberalization; credit; Ireland; Spain;
Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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