Work detail

Impact of Securitization on House Price Dynamics in Spain

Author: Mgr. Hana Hejlová
Year: 2014 - summer
Leaders: PhDr. Michal Hlaváček Ph.D.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 89
Awards and prizes:
Abstract: The 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, 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.




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