Co-moving systems with explosive regressors and time-varying volatility: Evidence from the Spanish housing market

Omar Blanco-Arroyo, Vicente Esteve and María A. Prats
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Omar Blanco-Arroyo: Universidad de Valencia, Spain
Vicente Esteve: Universidad de Valencia, Spain
María A. Prats: Universidad de Murcia, Spain and European Institute, London School of Economics and Political Science, UK

No 2601, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This study investigates the co-explosivity between Spain's nominal house price index and the housing credit-to-GDP ratio over the period 1971-2024, with particular emphasis on the housing bubble years from 1998 to 2008. Applying the framework proposed by Chen et al. (2017), the analysis reveals an asymmetric relationship: house prices exhibit a stronger sensitivity to credit expansion than credit does to price increases, underscoring the disproportionate ifluence of credit on housing market dynamics. During the 1998-2008 bubble phase, the relationship becomes more symmetric, suggesting a feedback loop in which relaxed lending standards fueled housing demand, while rising prices reinforced further credit growth. This period is characterized by tighter coupling between the two variables, stronger co-movement, and faster correction dynamics indicative of speculative lending behavior. The findings highlight the importance of monitoring credit conditions to better understand and manage housing market volatility.

Keywords: Housing market; house prices; Housing credit; Explosive behavior; Co-explosivity; Co-moving systems (search for similar items in EconPapers)
JEL-codes: C22 E31 E44 E51 G21 R31 (search for similar items in EconPapers)
Date: 2026-01
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