Risky mortgages, credit shocks and cross-border spillovers
Alicia de Quinto and
Francisco Javier Población García
No 123, ESRB Working Paper Series from European Systemic Risk Board
This paper describes a novel methodology of measuring risky and conservative mortgage credit using household survey data for 18 European Union countries and the United Kingdom. In addition, we construct time series for both types of credit and embed them into a global vector autoregressive (GVAR) model, so as to study how shocks to both variables affect domestic output and propagate across countries through cross-border banking exposures. The results show that a decrease in risky credit can have long-lasting positive effects on GDP, both in the originating country and its most exposed peers, while a fall in conservative credit is detrimental. In some geographies, negative shocks to both types of credit reduce output, a feature linked to the lower relevance of homeownership which implies that mortgage credit plays a less prominent role in the domestic economy. JEL Classification: C32, F47, G21, G51
Keywords: borrower-based measures; cross-border spillovers; LTV limits; Mortgage rating (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-eec, nep-fdg, nep-mac and nep-ure
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Journal Article: Risky mortgages, credit shocks and cross-border spillovers (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:2021123
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