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Subprime Borrowers, Securitization and the Transmission of Business Cycles

Grodecka, Anna LU (2019) In Canadian Journal of Economics 52(4).
Abstract
A growing literature (i.e. Jaffee, Lynch, Richardson, and Van Nieuwerburgh 2009, Acharya and Schnabl 2009) argues that securitization improves financial stability if the securitized assets are held by capital market participants, rather than financial intermediaries. I construct a quantitative macroeconomic model with a novel specification for mortgage-backed securities (MBS) to evaluate this claim. My findings suggest that the existence of the securitization market stabilizes the economy under the condition that financial intermediaries do not engage in the acquisition of securitized assets. In the presence of large negative housing preference shocks, the drop in output in the first year after the shock is halved, if subprime MBS are... (More)
A growing literature (i.e. Jaffee, Lynch, Richardson, and Van Nieuwerburgh 2009, Acharya and Schnabl 2009) argues that securitization improves financial stability if the securitized assets are held by capital market participants, rather than financial intermediaries. I construct a quantitative macroeconomic model with a novel specification for mortgage-backed securities (MBS) to evaluate this claim. My findings suggest that the existence of the securitization market stabilizes the economy under the condition that financial intermediaries do not engage in the acquisition of securitized assets. In the presence of large negative housing preference shocks, the drop in output in the first year after the shock is halved, if subprime MBS are purchased by non-financial agents, rather than held by banks. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
in press
subject
in
Canadian Journal of Economics
volume
52
issue
4
pages
56 pages
publisher
Wiley-Blackwell
ISSN
1540-5982
language
English
LU publication?
yes
id
84efb7d1-6df5-4e0b-a2f4-336f48be5ca3
date added to LUP
2019-06-27 08:22:16
date last changed
2019-06-28 09:01:23
@article{84efb7d1-6df5-4e0b-a2f4-336f48be5ca3,
  abstract     = {A growing literature (i.e. Jaffee, Lynch, Richardson, and Van Nieuwerburgh 2009, Acharya and Schnabl 2009) argues that securitization improves financial stability if the securitized assets are held by capital market participants, rather than financial intermediaries. I construct a quantitative macroeconomic model with a novel specification for mortgage-backed securities (MBS) to evaluate this claim. My findings suggest that the existence of the securitization market stabilizes the economy under the condition that financial intermediaries do not engage in the acquisition of securitized assets. In the presence of large negative housing preference shocks, the drop in output in the first year after the shock is halved, if subprime MBS are purchased by non-financial agents, rather than held by banks.},
  author       = {Grodecka, Anna},
  issn         = {1540-5982},
  language     = {eng},
  number       = {4},
  publisher    = {Wiley-Blackwell},
  series       = {Canadian Journal of Economics},
  title        = {Subprime Borrowers, Securitization and the Transmission of Business Cycles},
  volume       = {52},
  year         = {2019},
}