Bursting of the housing price bubble and the economic policy challenges for Spain

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Title: Bursting of the housing price bubble and the economic policy challenges for Spain
Author: Freystätter, Hanna
Series: Bank of Finland. Bulletin. Monetary policy and the global economy
Series number: 4
Year of publication: 2012
Pages: 35-47
Keywords: Espanja; hinnat; kuplat; asunnot; kriisit; talouspolitiikka; rahoitusmarkkinat; bkt; tuotanto; makrotalous; mallit;
Abstract: The wealth shock caused when the housing price bubble burst in Spain will have strong, long-lasting effects. As a consequence of the bursting of the bubble, financial factors (such as weaker balance sheets and higher costs of funding) weigh on the investment and consumption potential of companies and households. In this article, we use a model simulation to illustrate the procyclical effect of financial factors on the economic downswing in Spain. The economic programme of the country must be based on a realistic assessment of economic development that captures the significant and long-term negative growth contribution of financial factors. Economic policy measures should be adopted to avert the threat of balance sheet recession facing Spain and avoid any permanent effects of the crisis on the output potential of the economy.
Rights: https://helda.helsinki.fi/bof/copyright


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