Work detail

Impact of Securitization on House Price Dynamics in Spain

Author: Mgr. Hana Hejlová
Year: 2017 - winter
Leaders: PhDr. Michal Hlaváček Ph.D.
Work type: Doctoral
Language: English
Pages: 91
Awards and prizes:
Abstract: The rigorous thesis tries to explain different nature of the dynamics during the
upward and downward part of the last house price cycle in Spain, characterized
by important rigidities. Covered bonds are introduced as an instrument which
may accelerate a house price boom, while it may also serve as a source of correction
to overvalued house prices in downturn. In a serious economic stress,
lack of investment opportunities motivates investors to buy the covered bonds
due to the strong guarantees provided, which may in turn help to revitalize the
credit and housing markets. To address such regime shift, house price dynamics
is modelled within a framework of mutually related house price, credit and
business cycles using smooth transition vector autoregressive model. Linear
behaviour of such system is rejected, indicating the need to model house prices
in a nonlinear framework. Also, importance of modelling house prices in the
context of credit and business cycles is confirmed. Possible causality from issuance
of covered bonds to house price dynamics was identified in this nonlinear
structure. Finally, potential threat to financial stability resulting from rising
asset encumbrance both in the upward and downward part of the house price
cycle was identified, stressing the need to model impact of the covered bonds
on house prices in a situation when Basel III liquidity requirements motivate
towards use of this instrument.


McKinsey & Company