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The financial transmission of housing bubbles: evidence from Spain

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

No 2245, Working Paper Series from European Central Bank

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. JEL Classification: E32, E44, G21

Keywords: credit; financial frictions; financial transmission; housing bubble; investment; Spain (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-ban, nep-eec, nep-mac and nep-ure
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Related works:
Working Paper: The financial transmission of housing bubbles: evidence from Spain (2018) Downloads
Working Paper: The Financial Transmission of Housing Bubbles: Evidence from Spain (2018) Downloads
Working Paper: The Financial Transmission of Housing Bubbles: Evidence from Spain (2018) Downloads
Working Paper: The financial transmission of housing bubbles: evidence from spain (2018) Downloads
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