The Financial Transmission of Housing Bubbles: Evidence from Spain

66 Pages Posted: 26 Feb 2019

See all articles by Alberto Martin

Alberto Martin

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Enrique Moral-Benito

Banco de España; Charles III University of Madrid

Tom Schmitz

Queen Mary University of London

Multiple version iconThere are 3 versions of this paper

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

Martin, Alberto and Moral-Benito, Enrique and Schmitz, Tom, The Financial Transmission of Housing Bubbles: Evidence from Spain (February 22, 2019). ECB Working Paper No. 2245 (2019); ISBN 978-92-899-3507-4 , Available at SSRN: https://ssrn.com/abstract=3341198 or http://dx.doi.org/10.2139/ssrn.3341198

Alberto Martin (Contact Author)

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Charles III University of Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Tom Schmitz

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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