International capital flows and the boom-bust cycle in Spain

Abstract

We study the joint dynamics of foreign capital flows and real activity during the recent boom-bust cycle of the Spanish economy, using a three-country New Keynesian model with credit-constrained households and firms, a construction sector and a government. We estimate the model using 1995Q1-2013Q2 data for Spain, the rest of the Euro Area (REA) and the rest of the world. We show that falling risk premia on Spanish housing and nonresidential capital, a loosening of collateral constraints for Spanish households and firms, as well as a fall in the interest rate spread between Spain and the REA fuelled the Spanish output boom and the persistent rise in foreign capital flows to Spain, before the global financial crisis. During and after the global financial crisis, falling house prices, and a tightening of collateral constraints for Spanish borrowers contributed to a sharp reduction in capital inflows, and to the persistent slump in Spanish real activity. The credit crunch was especially pronounced for Spanish households; firm credit constraints tightened later and more gradually, and contributed much less to the slump.

Perceptions, attitudes and values of two key stakeholders on the oldest and newest Spanish national parks

“…Visitor limitation measures may include broadening existing restrictions such as reducing available parking space or motor vehicle routes inside and in the periphery of the NPs, implementing daily visitor quotas or entrance fees. The main perceived threats to both NPs are similar to those stated for other PAs of the Region of Madrid in recent years (Rodríguez-Rodríguez 2008), the main exception being urbanisation, which was scarcely mentioned in our study, probably as a result of the stark deceleration of construction rates across the country since the burst of the housing bubble around (In't Veld et al 2014González-Vallejo et al 2015). In contrast to recent national (Jiménez 2012) and regional trends (Rodríguez-Rodríguez 2008), urbanisation has never been a serious threat to Ordesa NP (Hewitt and Escobar 2011;Rodríguez-Rodríguez and Martínez-Vega 2017).…”

Current account dynamics and the housing cycle in Spain

“…Furthermore, we focus on the housing boom rather than the Spanish output cycle. We find little support for financial easing shocks in explaining the negative correlation of housing markets and the current account, which is in line with In't Veld et al (2014). Third, due to limited data availability, contributions like Hristov et al (2012) or Ciccarelli et al (2015) rely on panel data approaches to achieve efficiency gains.…”

“…In contrast, the push hypothesis explains housing markets by external factors that proactively allocate capital to Spain. One representative is the risk premium shock (see In't Veld et al, 2014). The creation of the common Euro denominated market eliminated risk premia among the member countries, which led core Eurozone investors to invest in Spain and further lowered risk free rates.…”

Spain and the Crisis: Housing Prices, Credit and Macroprudential Policies

“…In this way, we reconcile the structure of the model with the fact that …xed-rate contracts are long term. 17 The …rst-order conditions for these consumers are as follows:…”