Wheels within wheels within wheels: the importance of capital inflows in the origin of the Spanish financial crisis

Current Account Patterns and National Real Estate Markets

Rafael Fernández and Clara García

Cambridge Journal of Economics, 2018, vol. 42, issue 2, 331-353

Abstract: With the creation of the Euro, the Spanish economy established an exchange rate regime similar to that adopted by many emerging economies during the 1990s. At the same time, the Eurozone as a whole adopted a currency system with features similar to the US currency regime. In emerging economies, as in the US economy, the adoption of these models was accompanied by strong growth in capital inflows, as well as severe financial (mostly banking) and/or macroeconomic (mostly trade) imbalances. Several authors have linked capital inflows with imbalances as cause and effect. This work uses some of those arguments, along with statistical data on the characteristics and evolution of capital inflows registered by the Spanish economy, and by the Eurozone as a whole, in order to propose a causal link between post-Euro exchange rate regimes adopted in Spain, capital inflows, and the imbalances that preceded the financial crisis of 2008.

Keywords: Exchange rate regimes; Capital inflows; Domestic imbalances; Eurozone; Spain (search for similar items in EconPapers)
Date: 2018
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