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Asset Price Keynesianism, Regional Imbalances and the Irish and Spanish Housing Booms and Busts

Author

Listed:
  • Michelle Norris

    (School of Social Policy, Social Work and Social Justice, University College Dublin)

  • Michael Byrne

    (National Institute of Regional and Spatial Analysis, Maynooth University,)

Abstract

Ireland and Spain were amongst the European countries which experienced the most severe economic and fiscal problems following the global financial crisis. The proximate causes of these economic crashes have been explored in-depth by researchers and governments, who have highlighted strong parallels between the policy, regulatory and economic factors which underpinned them. In both countries residential property price inflation increased dramatically from the late 1990s driven by increased availability of cheap mortgages but unusually was accompanied by marked growth in new house building. Thus, following the international credit crunch in 2008, a simultaneous contraction in both mortgage credit and house building occurred in Ireland and Spain, which precipitated a marked knock-on decline in the employment, tax revenue and consumer spending which the housing boom had underpinned. This paper argues that the Irish and Spanish housing booms and busts are similar not just in terms of scale and proximate causes but also in terms of fundamental causes. In both countries the housing boom/bust cycle was underpinned by a suite of macroeconomic policies which aimed to use asset price growth to underpin rising demand and economic growth, or in other words achieve what Robert Brenner (2006) terms ‘asset-price Keynesianism’. This approach was particularly attractive to the Irish and Spanish governments because it enabled them to resolve historical legacies of industrial underdevelopment and regional imbalances by generating construction jobs in underdeveloped areas. As a result of the latter, local/regional governments in both countries played a key role in facilitating the implementation of this policy.

Suggested Citation

  • Michelle Norris & Michael Byrne, 2015. "Asset Price Keynesianism, Regional Imbalances and the Irish and Spanish Housing Booms and Busts," Working Papers 201514, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:201514
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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201514.pdf
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    References listed on IDEAS

    as
    1. Doyle, Nicola, 2009. "Housing Finance Developments in Ireland," Quarterly Bulletin Articles, Central Bank of Ireland, pages 75-88, October.
    2. Diarmaid Addison-Smyth & Kieran McQuinn, 2010. "Quantifying Revenue Windfalls from the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 41(2), pages 201-233.
    3. Seán Ó Riain, 2012. "The Crisis of Financialisation in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 43(4), pages 497-533.
    4. Michelle Norris & Dermot Coates & Fiona Kane, 2007. "Breaching the Limits of Owner Occupation? Supporting Low-Income Buyers in the Inflated Irish Housing Market1," European Journal of Housing Policy, Taylor and Francis Journals, vol. 7(3), pages 337-355.
    5. Honohan, Patrick & Donovan, Donal & Gorecki, Paul & Mottiar, Rafique, 2010. "The Irish Banking Crisis: Regulatory and Financial Stability Policy," MPRA Paper 24896, University Library of Munich, Germany.
    6. Alicia Garcia-Herrero & Santiago Fernandez de Lis, 2008. "The Housing Boom and Bust in Spain: Impact of the Securitisation Model and Dynamic Provisioning," Working Papers 0806, BBVA Bank, Economic Research Department.
    7. Michelle Norris & Dermot Coates & Fiona Kane, 2007. "Breaching the Limits of Owner Occupation? Supporting Low-Income Buyers in the Inflated Irish Housing Market1," International Journal of Housing Policy, Taylor & Francis Journals, vol. 7(3), pages 337-355.
    8. FitzGerald, John, 2005. "The Irish Housing Stock: Growth in Number of Vacant Dwellings," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2005(1-Spring), pages 1-22.
    9. Francisco Carballo-Cruz, 2011. "Causes and Consequences of the Spanish Economic Crisis: Why the Recovery is Taken so Long?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 309-328, September.
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    Keywords

    global financial crisis; economic crash; housing boom and bust; macroeconomic policies; asset price growth; industrial underdevelopment; ‘asset-price Keynesianism’;

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