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

29 Pages Posted: 5 Apr 2019

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: 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

Antinolfi, Gaetano and Brunetti, Celso, Economic Volatility and Financial Markets: The Case of Mortgage‐Backed Securities (May 2019). Financial Markets, Institutions & Instruments, Vol. 28, Issue 2, pp. 85-113, 2019, Available at SSRN: https://ssrn.com/abstract=3367147 or http://dx.doi.org/10.1111/fmii.12107

Gaetano Antinolfi (Contact Author)

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

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Celso Brunetti

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States

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