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The financial transmission of housing bubbles: evidence from Spain

Author

Listed:
  • Alberto Martín

    () (Crei, universitat pompeu fabra and Barcelona GSE)

  • Enrique Moral-Benito

    () (Banco de España)

  • Tom Schmitz

    () (Bocconi university and IGIER)

Abstract

What are the effects of a housing bubble on the rest of the economy? We show that if firms and banks face collateral constraints, a housing bubble initially raises credit demand by housing firms while leaving credit supply unaffected. It therefore crowds out credit to non-housing firms. If time passes and the bubble lasts, however, housing firms eventually pay back their higher loans. This leads to an increase in banks’ net worth and thus to an expansion in their supply of credit to all firms: crowding-out gives way to crowding-in. These predictions are confirmed by empirical evidence from the recent Spanish housing bubble. In the early years of the bubble, non-housing firms reduced their credit from banks that were more exposed to the bubble, and firms that were more exposed to these banks had lower credit and output growth. In its last years, these effects were reversed.

Suggested Citation

  • Alberto Martín & Enrique Moral-Benito & Tom Schmitz, 2018. "The financial transmission of housing bubbles: evidence from Spain," Working Papers 1823, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1823
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    References listed on IDEAS

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      Keywords

      housing bubble; credit; investment; financial frictions; financial transmission; Spain;

      JEL classification:

      • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
      • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
      • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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