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Risky mortgages, credit shocks and cross-border spillovers

Author

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  • Buesa, Alejandro
  • De Quinto, Alicia
  • Población, Javier

Abstract

This paper describes a novel methodology of measuring risky and conservative mortgage credit using household survey data for 17 European Union countries and the United Kingdom. In addition, we construct time series for both types of credit and embed them into a global vector autoregressive (GVAR) model, so as to study how shocks to both variables affect domestic output and propagate across countries through cross-border banking exposures. The results show that a decrease in risky credit can have long-lasting positive effects on GDP, both in the originating country and its most exposed peers, while a fall in conservative credit is detrimental. In some geographies, negative shocks to both types of credit reduce output, a feature linked to the lower relevance of homeownership which implies that mortgage credit plays a less prominent role in the domestic economy.

Suggested Citation

  • Buesa, Alejandro & De Quinto, Alicia & Población, Javier, 2022. "Risky mortgages, credit shocks and cross-border spillovers," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 717-733.
  • Handle: RePEc:eee:reveco:v:80:y:2022:i:c:p:717-733
    DOI: 10.1016/j.iref.2022.02.076
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    More about this item

    Keywords

    Mortgage rating; LTV limits; Borrower-based measures; Cross-border spillovers;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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