Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26572
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper No. 2527
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We explore the impact of mortgage securitization on the international diversification of macroeconomic risk. By making mortgage-related risks internationally tradeable, securitization contributes considerably to better international consumption risk sharing: we find that countries with the most highly developed markets for securitized mortgage debt have consumption responses to a typical idiosyncratic business cycle shock that are 20-30 percent less volatile than those experienced by countries that do not allow for mortgage securitization. Our results are based on quarterly data from a panel of 16 industrialized countries and cover the sample period 1985-2008Q1. They are robust to a range of controls for other aspects of financial globalization, international differences in the structure of housing markets and the financial system etc. Against the backdrop of the subprime crisis, these findings inevitably raise the question whether securitization could not just facilitate risk sharing in tranquil times but that it actually fails to provide international insurance in severe crisis periods. Indeed, we find that international risk sharing decreases in global asset price downturns and increases in booms. But we do not find evidence that countries with more developed securitization markets are systematically more exposed to these fluctuations in the extent to which risk can be shared across national boundaries.
Subjects: 
Financial globalization
international risk sharing
home bias
securitization
mortgage markets
asset prices
international business cycles
JEL: 
F36
F37
F41
G15
G21
Document Type: 
Working Paper
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