Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-52330
Hoffmann, Mathias; Nitschka, Thomas (2008). Securitization of Mortgage Debt, Asset Prices and International Risk Sharing. Working paper series / Institute for Empirical Research in Economics No. 376, University of Zurich.
We explore the impact of mortgage securitization on the international diversification of macroeconomic risk. By making mortgage-related risks internationally tradeable, securitization contributes considerably to better international consumption risk sharing: we find that countries with the most highly developed markets for securitized mortgage debt have consumption responses to a typical idiosyncratic business cycle shock that are 20-30 percent less volatile than those experienced by countries that do not allow for mortgage securitization. Our results are based on quarterly data from a panel of 16 industrialized countries and cover the sample period 1985-2008Q1. They are robust to a range of controls for other aspects of financial globalization, international differences in the structure of housing markets and the financial system etc. Against the backdrop of the subprime crisis, these findings inevitably raise the question whether securitization could notnjust facilitate risk sharing in tranquil times but that it actually fails to provide international insurance in severe crisis periods. Indeed, we find that international risk sharing decreases in global asset price downturns and increases in booms. But we do not find evidence that countries with more developed securitization markets are systematically more exposed to these fluctuations in the extent to which risk can be shared across national boundaries.
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|Item Type:||Working Paper|
|Communities & Collections:||03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
|Dewey Decimal Classification:||330 Economics|
|Deposited On:||29 Nov 2011 22:47|
|Last Modified:||09 Jul 2012 05:03|
|Series Name:||Working paper series / Institute for Empirical Research in Economics|
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