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The financial transmission of housing bubbles: evidence from spain

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

No 299, 2018 Meeting Papers from Society for Economic Dynamics

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, and therefore crowds out credit to non-housing fims. If time passes and the bubble lasts, however, housing fims 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, so that crowding-out gives way to crowding-in. These predictions are confirmed by empirical evidence from the Spanish housing bubble of 1995-2008. 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 exhibited lower credit and output growth. In its last years, however, these effects were reversed.

Date: 2018
New Economics Papers: this item is included in nep-ure
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Related works:
Working Paper: The financial transmission of housing bubbles: evidence from Spain (2019) 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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