The Financial Transmission of Housing Bubbles: Evidence from Spain
66 Pages Posted: 26 Feb 2019
There are 3 versions of this paper
The Financial Transmission of Housing Bubbles: Evidence from Spain
The Financial Transmission of Housing Bubbles: Evidence from Spain
The Financial Transmission of Housing Booms: Evidence from Spain
Date Written: February 22, 2019
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.
Keywords: Housing bubble, Credit, Investment, Financial Frictions, Financial Transmission, Spain
JEL Classification: E32, E44, G21
Suggested Citation: Suggested Citation