The Financial Transmission of Housing Booms: Evidence from Spain

Martín, Alberto, Enrique Moral-Benito and Tom Schmitz
Authors registered in the RePEc Author Service: Alberto Martin

No 12999, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What are the effects of a housing bubble on the rest of the economy? We show that if firms and banks face collateral constraints, a housing bubble initially raises credit demand by housing firms while leaving credit supply unaffected. It therefore crowds out credit to non-housing firms. If time passes and the bubble lasts, however, housing firms eventually pay back their higher loans. This leads to an increase in banks’ net worth and thus to an expansion in their supply of credit to all firms: crowding-out gives way to crowding-in. These predictions are confirmed by empirical evidence from the recent Spanish housing bubble. In the early years of the bubble, non-housing firms reduced their credit from banks that were more exposed to the bubble, and firms that were more exposed to these banks had lower credit and output growth. In its last years, these effects were reversed.

Keywords: Housing booms; 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: 2019-09
New Economics Papers: this item is included in nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: The Financial Transmission of Housing Booms: Evidence from Spain (2021)
Working Paper: The financial transmission of housing booms: evidence from Spain (2020)
Working Paper: The Financial Transmission of Housing Booms: Evidence from Spain (2018)
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