The Spanish Crisis from a Global Perspective

This paper studies the recent evolution of the Spanish economy in the context of the developments of the world economy and presents a benchmark model with financial frictions to assess the sources of these ‡uctuations. We pay particular attention to the comparison with the United States and some of Spain’s European peers in the 1994-2009 period. First, we document the long expansion between 1994 and early 2008 in terms of the main economic aggregates and the boom in the real estate market. Second, we also report on the fast downturn of these economies in the second half of 2008. Third, we use our benchmark model with financial frictions to evaluate how much we understand of the mechanism behind these large changes in aggregate behavior. We conclude with some policy remarks.