Risky Mortgages, Credit Shocks and Cross-Border Spillovers

29 Pages Posted: 3 Aug 2021

Date Written: August, 2021


This paper describes a novel methodology of measuring risky and conservative mortgage credit using household survey data for 18 European Union countries and the United Kingdom. In addition, we construct time series for both types of credit and embed them into a global vector autoregressive (GVAR) model, so as to study how shocks to both variables affect domestic output and propagate across countries through cross-border banking exposures. The results show that a decrease in risky credit can have long-lasting positive effects on GDP, both in the originating country and its most exposed peers, while a fall in conservative credit is detrimental. In some geographies, negative shocks to both types of credit reduce output, a feature linked to the lower relevance of homeownership which implies that mortgage credit plays a less prominent role in the domestic economy.

JEL Classification: C32, F47, G21, G51

Suggested Citation

Buesa, Alejandro and Quinto, Alicia De and Población García, Francisco Javier, Risky Mortgages, Credit Shocks and Cross-Border Spillovers (August, 2021). ESRB: Working Paper Series 2021/123, Available at SSRN: https://ssrn.com/abstract=3898300 or http://dx.doi.org/10.2139/ssrn.3898300

Alicia De Quinto

Banco de España ( email )

Alcala 50
Madrid 28014

Francisco Javier Población García

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

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