Indeed, from 2008 to 2014 the Banco de España prepared a considerable number of releases, articles and reports on the crisis and the measures adopted, which were available in print or on our website no sooner were they drafted. That is to say, the Bank had already prepared and published extensive information on and various analyses of the crisis; but what was missing was an orderly overview, in terms of both the timeline and the different themes, addressing the key macroeconomic, financial, regulatory and supervisory aspects. The imbalances built up in the Spanish economy in the expansion prior to 2008 Allow me first to refer to the build-up of macroeconomic and financial imbalances in the expansion years prior to the crisis, linked most significantly to private-sector debt. In its opening chapter, the Report indicates that an intense process of indebtedness unfolded in Spain from 2001 up to 2007, as reflected in Table 1.1 (p. 66). The figures for the period 2001-2007 are as follows: set against nominal GDP growth of 67%, credit to the private sector increased by 221%, concentrated especially in the real estate sector, where growth of 250% in house purchase loans and of 513% in the case of credit to construction and real estate services companies was recorded. Peak growth in credit was in 2005 and 2006. In those two years, credit to the private sector grew by 60%, that earmarked for house purchases by 65% and that to construction and real estate services firms by almost 100%, i.e.
IS Schedule Interest rate sensitive sectors need to respond sufficiently to the tightening of policy in order to moderate demand, without tipping the economy into a sharp or broader downturn. Tighter financial conditions can restrain demand via transmission channels working through higher mortgage rates, more selective credit underwriting and wealth effects from lower equity prices. If these channels begin to restrain growth in 2022 at a time when corporate and household balance sheets are still strong, they contribute to achieving a soft landing. Phillips Curve Combined with labour supply improvements, employment needs to moderate sufficiently to cool wage growth without eliciting a sharp rise in the unemployment rate. Some relief could come from a rise in the LFPR. Post-Covid normalisations could see the return of some of the “missing” 1-1.5 million workers that have exited the labour force because of the pandemic. The present strength in labour demand is reflected in an unusually high ratio of two vacancies for each unemployed person. Some reduction in vacancies will not generate negative income effects in the same way that outright layoffs would. For a “soft landing”, the Non-Accelerating Inflation Rate of Unemployment (NAIRU) would have to converge to its lower pre-Covid level at a faster pace than actual unemployment rises. A return of the NAIRU to its value before 2020 would verify the absence of labour market scarring. Soft Landings A recent Bank for International Settlements (BIS) study [1] usefully identified some stylised facts on hard versus soft landings in the global economy.