Securitization and economic activity: The credit composition channel

Bertay, Ata Can; Gong, Di; Wagner, Wolf

doi:10.1016/j.jfs.2016.01.010

Cited by 23 publications

(15 citation statements)

References 43 publications

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“…Despite its negative facade, mainly due to the speculative purpose followed by several financial actors before the financial crisis, sustainable securitisation has been indicated as a resource of funding for firms or households (see Segoviano et al (2013)). Moreover, Bertay et al (2016) emphasizes the positive correlation of firms' loans securitisation with the economic activity. Among its role as source of funding, a transparent securitisation could also help investors, allowing them to diversify their portfolios in terms of risk and return, leading to lower costs of capital, higher economic growth and a broader distribution of risk (BoE and ECB (2014)).…”

Section: Securitisation In Empirical and Theoretical Literaturementioning

confidence: 99%

“…In this paper, we do not want to focus on the individual banks decisions, but we analyze how securitisation affects business cycle, trying to explain how securitisation can impact economic activity, either in a positive or negative way. The channels linking securitisation and real economy are mainly twofold (see Bertay et al (2016) and the related literature). The first one is the change in credit volume of the economy, that can result in more consumption for households and more funds for investments for firms.…”

Section: Securitisation In Empirical and Theoretical Literaturementioning

confidence: 99%

“…Also Peersman and Wagner (2015) analyse lending, securitisation and risk-taking shocks and find that securitisation has relevent effects on U.S. business cycle. Furthermore, Bertay et al (2016) show the credit composition channel of securitisation, stating that coutries with more securitisation on business loans have higher economic growth, as opposed to household mortgages. Although we focus on the credit volume channel, we show that securitisation can result in more investments and thus trigger economic activity, expecially when only firm loans are securitised.…”

Section: Business Cyclementioning

confidence: 99%

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Securitization and business cycle: an agent-based perspective

Mazzocchetti

Raberto

Teglio

et al. 2018

Industrial and Corporate Change

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We study the effects of loans and mortgages securitisation on business cycles by using a large-scale agent-based stock-flow consistent macroeconomic model and simulator, that we enriched by including a financial vehicle corporation (FVC), that buys loans and mortgages from banks and issues ABSs and MBSs, and a mutual fund, that invests both in ABSs and MBSs. Households own the equity of the mutual fund in the form of equity shares. By means of securitisation, banks conduct regulatory capital arbitrage and reduce risk weighted assets in their balance sheet, in order to lend more loans and mortgages. Results show that different levels of securitisation propensity are able to affect credit and business cycles in different manners. On one side, securitisation increases banks lending activity, influencing positively investment and consumption. On the onther side, the increased amount of credit amplifies the negative shocks, due to higher loans write-offs probability, triggered by the boosted leding activity. Firms' bankruptcies impact the equity of banks, affecting their ability to grant new loans to consumption goods producers (CGPs), which need credit for their production activity, and mortgages to households, which are not able to purchase housing units. CGPs soon go bankrupt and households see their capital income reduced. The predominance of one effect on the other depends on the level of securitisation propensity and the time span considered.

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Section: Securitisation In Empirical and Theoretical Literaturementioning

confidence: 99%

Section: Securitisation In Empirical and Theoretical Literaturementioning

confidence: 99%

Section: Business Cyclementioning

confidence: 99%

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Securitization and business cycle: an agent-based perspective

Mazzocchetti

Raberto

Teglio

et al. 2018

Industrial and Corporate Change

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“…For an analysis of the relationship between business securitization and real activity see Bertay, Gong, and Wagner ().…”

mentioning

confidence: 99%

“…However, we run the linear model for lags 1 to 10 and the results in terms of sign and significance are robust to the choice of the lag-length (as a matter of fact, AICs are very similar across regressions). This is why inTable 1through 4 the lags differ across variables.10 For an analysis of the relationship between business securitization and real activity seeBertay, Gong, and Wagner (2017).11 Note that regime switching models require a large number of observations. In fact, most of our estimates are significant at the 20% level.…”

mentioning

confidence: 99%

Economic volatility and financial markets: The case of mortgage‐backed securities

Antinolfi

Brunetti

2019

Financial Market

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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.

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Unveiling the black swan of the finance‐growth Nexus: Assumptions and preliminary evidence of virtuous and unvirtuous cycles

2022

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Empirical evidence behind the nature of the finance‐growth nexus and mediating drivers behind this association is well documented in the literature. However, a framework that depicts the association between credit creation, financial innovation and endogenous creation of boom‐bust cycles is less evident and the gap between empirical research and theoretical development remains. Hence, this study represents a first attempt to provide a framework that could explain the switch of economic cycles from virtuous to unvirtuous and vice versa. We examine the role of financial innovation and identify its “hidden soul” defined as the rate of financial innovation (RoFIN). We study RoFIN together with other structural factors, such as monopolistic financial power concentration and financial deregulation in the creation of what we identify as the wealth trap, as a potential mediating factor behind the creation of virtuous and unvirtuous cycles. A cross‐country statistical exercise using the VUC indicator on the United States, United Kingdom, and Euro area economies shows the exponential effect of the rate of financial innovation over time and provides indicative evidence in support of our framework. Finally, we report that the indicator is better able to identify the unvirtuous cycle stages than the traditionally used Credit‐to‐GDP ratio.

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Securitization and economic activity: The credit composition channel

Cited by 23 publications

References 43 publications

Securitization and business cycle: an agent-based perspective

Securitization and business cycle: an agent-based perspective

Economic volatility and financial markets: The case of mortgage‐backed securities

Unveiling the black swan of the finance‐growth Nexus: Assumptions and preliminary evidence of virtuous and unvirtuous cycles

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