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House prices and real interest rates in Spain

Listed author(s):
  • Juan Ayuso

    ()

    (Banco de España)

  • Roberto Blanco

    ()

    (Banco de España)

  • Fernando Restoy

    ()

    (Banco de España)

Registered author(s):

    This paper analyses the contribution of interest rates to explain recent house price developments in Spain trying to reconcile different pieces of evidence. On the one hand, empirical evidence supports the view that interest rates are a key variable to explain house price developments. As a matter of fact, using simple asset pricing relations recent changes in house prices could be fully explained by movements in ex-post real interest rates. However, more refined asset pricing models show that the changes in the discount factor cannot fully explain the recent course of house prices in Spain. To resolve this puzzle we provide evidence that shows that the actual real cost of financing might have decreased significantly less than what the course of ex-post real rates would suggest.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/06/Fic/do0608e.pdf
    File Function: First version, MDecember 2006
    Download Restriction: no

    Paper provided by Banco de España & Occasional Papers Homepage in its series Occasional Papers with number 0608.

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    Length: 36 pages
    Date of creation: Dec 2006
    Handle: RePEc:bde:opaper:0608
    Contact details of provider: Web page: http://www.bde.es/

    Web page: http://www.bde.es/bde/en/secciones/informes/Publicaciones_se/Documentos_Ocasi/
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