Department of Economics and Business - Universitat Pompeu Fabra

Title:: The financial transmission of housing booms: evidence from Spain
Authors:: Alberto Martin, Enrique Moral-Benito and Tom Schmitz
Date:: June 2018 (Revised: September 2020)
Abstract:: How does a housing boom affect credit to non-housing firms? Using bank, firm and loan-level microdata, we show that the Spanish housing boom reduced non-housing credit growth during its first years, but stimulated it later on. These patterns can be rationalized by financial constraints for banks. Constrained banks initially accommodated higher housing credit demand by reducing non-housing credit. Eventually, however, the housing boom increased bank net worth and expanded credit supply. A quantitative model, disciplined by our cross-sectional estimates, indicates that the crowding-out effect was substantial but temporary, and had been fully absorbed by the end of the boom.
Keywords:: Housing bubble, credit, investment, financial frictions, financial transmission, Spain
JEL codes:: E32, E44, G21
Area of Research:: Macroeconomics and International Economics
Published in:: American Economic Review, 111(3), 2021, 1013-1053
Comment:: Forthcoming in American Economic Review

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