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The financial transmission of housing booms: evidence from Spain

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What are the effects of a housing boom on credit to non-housing firms? We show that when banks face financial constraints, rising demand for housing initially crowds out non-housing credit. As the boom continues, however, housing credit repayments raise banks’ net worth and expand their credit supply, so that crowding-out gives way to crowding-in. We show that these effects were present during the recent Spanish housing boom: non-housing credit grew first slower and then faster at banks and firms that were more exposed to the boom. This financial transmission channel first lowered and later increased non-housing credit by around 2%.

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  • Alberto Martin & Enrique Moral-Benito & Tom Schmitz, 2018. "The financial transmission of housing booms: evidence from Spain," Economics Working Papers 1613, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2019.
  • Handle: RePEc:upf:upfgen:1613
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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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