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The financial transmission of housing bubbles: evidence from spain

Author

Listed:
  • Alberto Martin

    (CREI, UPF and Barcelona GSE)

  • Enrique Moral Benito

    (Banco de Espana)

  • Tom Schmitz

    (Bocconi University)

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, and therefore crowds out credit to non-housing fims. If time passes and the bubble lasts, however, housing fims 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, so that crowding-out gives way to crowding-in. These predictions are confirmed by empirical evidence from the Spanish housing bubble of 1995-2008. 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 exhibited lower credit and output growth. In its last years, however, these effects were reversed.

Suggested Citation

  • Alberto Martin & Enrique Moral Benito & Tom Schmitz, 2018. "The financial transmission of housing bubbles: evidence from spain," 2018 Meeting Papers 299, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:299
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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. Arce, Fernando, 2021. "Private Overborrowing under Sovereign Risk," MPRA Paper 113176, University Library of Munich, Germany.
    3. Nina Biljanovska & Lucyna Gornicka & Alexandros Vardoulakis, 2019. "Optimal Macroprudential Policy and Asset Price Bubbles," IMF Working Papers 2019/184, International Monetary Fund.
    4. 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.
    5. 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.
    6. Asriyan, Vladimir & Laeven, Luc & Martín, Alberto & Van der Ghote, Alejandro N & Vanasco, Victoria, 2021. "Falling Interest Rates and Credit Misallocation: Lessons from General Equilibrium," CEPR Discussion Papers 16720, C.E.P.R. Discussion Papers.
    7. Doerr, Sebastian, 2018. "Collateral, Reallocation, and Aggregate Productivity: Evidence from the U.S. Housing Boom," MPRA Paper 106163, University Library of Munich, Germany.
    8. Álvarez-Román, Laura & García-Posada, Miguel, 2021. "Are house prices overvalued in Spain? A regional approach," Economic Modelling, Elsevier, vol. 99(C).
    9. Vladimir Asriyan & Luc Laeven & Alberto Martin & Alejandro Van der Ghote & Victoria Vanasco, 2021. "Falling interest rates and credit reallocation: Lessons from general equilibrium," Economics Working Papers 1784, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2022.

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    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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