Economic Volatility and Financial Markets: The Case of Mortgage‐Backed Securities
29 Pages Posted: 5 Apr 2019
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Economic Volatility and Financial Markets: The Case of Mortgage-Backed Securities
Economic Volatility and Financial Markets: The Case of Mortgage-Backed Securities
Date Written: May 2019
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, more effective policy, and a diverse set of innovations in technology as well as financial markets. We study one such financial innovation, and document a negative relation between the rapid growth of mortgage‐backed securities and the volatility of GDP and some of its components from the mid‐1970s to the late 1990s. We also document that this relation changed sign, from negative to positive, in the early 2000s.
Keywords: Great Moderation, Mortgage‐backed securities, Volatility
JEL Classification: E44, E32, G21, C22
Suggested Citation: Suggested Citation
Celso Brunetti
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
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Economic Volatility and Financial Markets: The Case of Mortgage‐Backed Securities
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