The Financial Transmission of Housing Booms: Evidence from Spain
- American Economic Review (Forthcoming)
How does a housing boom affect credit to non-housing ﬁrms? Using bank, ﬁrm and loan-level micro-data, 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.
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