Securitization of Mortgage Debt, Asset Prices and International Risk Sharing

50 Pages Posted: 27 Jan 2009

See all articles by Mathias Hoffmann

Mathias Hoffmann

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Thomas Nitschka

Swiss National Bank

Multiple version iconThere are 2 versions of this paper

Date Written: January 2009

Abstract

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 not just 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.

Keywords: financial globalization, international risk sharing, home bias, securitization, mortgage markets, asset prices, international business cycles

JEL Classification: F36, F37, F41, G15, G21

Suggested Citation

Hoffmann, Mathias and Nitschka, Thomas, Securitization of Mortgage Debt, Asset Prices and International Risk Sharing (January 2009). CESifo Working Paper Series No. 2527, Available at SSRN: https://ssrn.com/abstract=1333515

Mathias Hoffmann (Contact Author)

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Thomas Nitschka

Swiss National Bank ( email )

Monetary Policy Analysis
Börsenstrasse 15
Zuerich, 8022
Switzerland

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