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The financial transmission of housing bubbles: evidence from Spain

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

Abstract

How do housing bubbles affect other economic sectors? We show that in the presence of collateral constraints, a bubble initially raises housing credit demand and crowds out credit to non-housing firms. If the bubble lasts, however, housing credit repayments raise banks’ net worth and expand credit supply, so that crowding-out eventually gives way to crowding-in. This is consistent with evidence from the recent Spanish housing bubble. Initially, credit growth of non-housing firms was lower at banks with higher bubble exposure, and firms relying on these banks exhibited lower credit and output growth. During the bubble’s last years, these effects reversed. JEL Classification: E32, E44, G21

Suggested Citation

  • Martin, Alberto & Moral-Benito, Enrique & Schmitz, Tom, 2019. "The financial transmission of housing bubbles: evidence from Spain," Working Paper Series 2245, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20192245
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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. Peter Bednarek & Daniel Marcel te Kaat & Chang Ma & Alessandro Rebucci, 2021. "Capital Flows, Real Estate, and Local Cycles:Evidence from German Cities, Banks, and Firms," Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 5077-5134.
    3. Nina Biljanovska & Lucyna Gornicka & Alexandros Vardoulakis, 2019. "Optimal Macroprudential Policy and Asset Price Bubbles," IMF Working Papers 2019/184, International Monetary Fund.
    4. Álvarez-Román, Laura & García-Posada, Miguel, 2021. "Are house prices overvalued in Spain? A regional approach," Economic Modelling, Elsevier, vol. 99(C).
    5. Rafael González-Val, 2021. "The Effects of the 2012 Spanish Law Reform to Protect Mortgage Debtors," Housing Policy Debate, Taylor & Francis Journals, vol. 31(2), pages 239-253, March.
    6. Vladimir Asriyan & Luc Laeven & Alberto Martin & Alejandro Van der Ghote & Victoria Vanasco, 2021. "Falling interest rates and credit misallocation: Lessons from general equilibrium," Economics Working Papers 1784, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2021.
    7. Doerr, Sebastian, 2018. "Collateral, Reallocation, and Aggregate Productivity: Evidence from the U.S. Housing Boom," MPRA Paper 106163, University Library of Munich, Germany.

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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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