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The Financial Transmission of Housing Booms: Evidence from Spain

Alberto Martin, Enrique Moral-Benito () and Tom Schmitz

No 1044, Working Papers from Barcelona Graduate School of Economics

Abstract: How does a housing boom affect credit to non-housing firms? Using bank, firm and loan-level microdata, we show that the Spanish housing boom reduced non-housing credit growth during its first years, but stimulated it later on. These patterns can be rationalized by financial constraints for banks. Constrained banks initially accommodated higher housing credit demand by reducing non-housing credit. Eventually, however, the housing boom increased bank net worth and expanded credit supply. A quantitative model, disciplined by our cross-sectional estimates, indicates that the crowding-out effect was substantial but temporary, and had been fully absorbed by the end of the boom.

Keywords: housing bubble; credit; investment; financial frictions; financial transmission; Spain (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-knm, nep-mac and nep-ure
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Working Paper: The financial transmission of housing booms: evidence from Spain (2020) Downloads
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