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The Financial Transmission of Housing Bubbles: Evidence from Spain
1 : Bocconi University
How do housing bubbles aect 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 rms. 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 rms was lower at banks with higher
bubble exposure, and rms relying on these banks exhibited lower credit and output growth. During the
bubble's last years, these eects reversed.
