International Capital Flows and the Boom-Bust Cycle in Spain

Robert Kollmann (), Werner Roeger, Jan in t Veld, Marco Ratto and Beatrice Pataracchia
Authors registered in the RePEc Author Service: Jan in 't Veld

No 9957, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 non-residential 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.

Keywords: Boom-bust cycle; European monetary union; Financial frictions; Housing market; International capital flows; Spain; Sudden stop (search for similar items in EconPapers)
JEL-codes: C11 E21 E32 E62 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-eec, nep-mac, nep-opm and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (56)

Downloads: (external link)
https://cepr.org/publications/DP9957 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: International capital flows and the boom-bust cycle in Spain (2014)
Working Paper: International Capital Flows and the Boom-Bust Cycle in Spain (2014)
Working Paper: International Capital Flows and the Boom-Bust Cycle in Spain (2014)
Working Paper: International Capital Flows and the Boom-Bust Cycle in Spain (2014)
Working Paper: International capital flows and the boom-bust cycle in Spain (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9957

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9957

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().