What are the effects of a housing boom on credit to non-housing firms? We show that when banks face financial constraints, rising demand for housing initially crowds out non-housing credit. As the boom continues, however, housing credit repayments raise banks net worth and expand their credit supply, so that crowding-out gives way to crowding-in. We show that these effects were present during the recent Spanish housing boom: non-housing credit grew first slower and then faster at banks and firms ...
What are the effects of a housing boom on credit to non-housing firms? We show that when banks face financial constraints, rising demand for housing initially crowds out non-housing credit. As the boom continues, however, housing credit repayments raise banks net worth and expand their credit supply, so that crowding-out gives way to crowding-in. We show that these effects were present during the recent Spanish housing boom: non-housing credit grew first slower and then faster at banks and firms that were more exposed to the boom. This financial transmission channel first lowered and later increased non-housing credit by around 2%.
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