Risky mortgages, credit shocks and cross-border spillovers

Alejandro Buesa, Alicia de Quinto and Javier Población

International Review of Economics & Finance, 2022, vol. 80, issue C, 717-733

Abstract: This paper describes a novel methodology of measuring risky and conservative mortgage credit using household survey data for 17 European Union countries and the United Kingdom. In addition, we construct time series for both types of credit and embed them into a global vector autoregressive (GVAR) model, so as to study how shocks to both variables affect domestic output and propagate across countries through cross-border banking exposures. The results show that a decrease in risky credit can have long-lasting positive effects on GDP, both in the originating country and its most exposed peers, while a fall in conservative credit is detrimental. In some geographies, negative shocks to both types of credit reduce output, a feature linked to the lower relevance of homeownership which implies that mortgage credit plays a less prominent role in the domestic economy.

Keywords: Mortgage rating; LTV limits; Borrower-based measures; Cross-border spillovers (search for similar items in EconPapers)
JEL-codes: C32 F47 G21 G51 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Risky mortgages, credit shocks and cross-border spillovers (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:717-733

DOI: 10.1016/j.iref.2022.02.076

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