Economic Volatility and Financial Markets: The Case of Mortgage-Backed Securities

29 Pages Posted: 28 Sep 2012

See all articles by Gaetano Antinolfi

Gaetano Antinolfi

Washington University in St. Louis - Department of Economics

Celso Brunetti

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: September 27, 2012

Abstract

The volatility of aggregate economic activity in the United States decreased markedly in the mid eighties. The decrease was diffused among several components of GDP and has been linked to a more stable economic environment, identified by smaller shocks and more effective policy, and a diverse set of innovations related to technology and inventory management as well as financial markets. We document a negative relation between the volatility of GDP and some of its components and one such financial development: the emergence of mortgage-backed securities. We also document that the relationship between the volatility of aggregate economy activity and the development of mortgage-backed-securities markets changes sign, from negative to positive, in the early 2000's.

Keywords: Great Moderation, Volatility, Mortgage Backed Securities, Regime Switching

JEL Classification: E30, G10

Suggested Citation

Antinolfi, Gaetano and Brunetti, Celso, Economic Volatility and Financial Markets: The Case of Mortgage-Backed Securities (September 27, 2012). Available at SSRN: https://ssrn.com/abstract=2153824 or http://dx.doi.org/10.2139/ssrn.2153824

Gaetano Antinolfi

Washington University in St. Louis - Department of Economics ( email )

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St. Louis, MO 63130
United States
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314-935-4156 (Fax)

Celso Brunetti (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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