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The Financial Transmission of Housing Bubbles: Evidence from Spain

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  • Martín, Alberto
  • Moral-Benito, Enrique
  • Schmitz, Tom

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.

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  • Martín, Alberto & Moral-Benito, Enrique & Schmitz, Tom, 2018. "The Financial Transmission of Housing Bubbles: Evidence from Spain," CEPR Discussion Papers 12999, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12999
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    Cited by:

    1. Harald Hau & Difei Ouyang, 2019. "Local Capital Scarcity and Small Firm Growth: Evidence from Real Estate Booms in China," CESifo Working Paper Series 7928, CESifo.
    2. Nina Biljanovska & Lucyna Gornicka & Alexandros Vardoulakis, 2019. "Optimal Macroprudential Policy and Asset Price Bubbles," IMF Working Papers 2019/184, International Monetary Fund.
    3. González-Val, Rafael, 2020. "The effects of the 2012 Spanish law reform to protect mortgage debtors," MPRA Paper 102173, University Library of Munich, Germany.
    4. Bednarek, Peter & te Kaat, Daniel Marcel & Ma, Chang & Rebucci, Alessandro, 2019. "Capital flows, real estate, and local cycles: Evidence from German cities, banks, and firms," Discussion Papers 45/2019, Deutsche Bundesbank.
    5. Sebastian Doerr, 2020. "Housing booms, reallocation and productivity," BIS Working Papers 904, Bank for International Settlements.

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    More about this item

    Keywords

    credit; Financial Frictions; Financial Transmission; housing bubble; investment; Spain;
    All these keywords.

    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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