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

33 Pages Posted: 31 Jul 2013

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: April 29, 2013

Abstract

The volatility of aggregate economic activity in the United States decreased markedly in the mid eighties. The decrease involved 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 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 this relationship changed sign, from negative to positive, in the early 2000's.

Keywords: Mortgage backed securities, volatility, great moderation

JEL Classification: E3, G1

Suggested Citation

Antinolfi, Gaetano and Brunetti, Celso, Economic Volatility and Financial Markets: The Case of Mortgage-Backed Securities (April 29, 2013). FEDS Working Paper No. 2013-42, Available at SSRN: https://ssrn.com/abstract=2303895 or http://dx.doi.org/10.2139/ssrn.2303895

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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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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