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Securitization of mortgage debt, domestic lending, and international risk sharing

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Listed:
  • Mathias Hoffmann
  • Thomas Nitschka

Abstract

Securitization makes mortgage-related risks internationally tradeable and thus contributes considerably to the international diversification of macroeconomic risk: in the years 2003-2008, the increase in international cross-holdings of securitized mortgage debt has lowered industrialized countries' conditional consumption volatility (relative to the United States) by about 10-15 percentage points. We turn to the role of domestic credit in explaining this result. Domestic credit leads to better international risk sharing only if debt is securitized and traded internationally. Conversely, the risk-sharing benefits from securitization seem to evaporate if credit dries up - as it did in the recent financial crisis.

Suggested Citation

  • Mathias Hoffmann & Thomas Nitschka, 2012. "Securitization of mortgage debt, domestic lending, and international risk sharing," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 493-508, May.
  • Handle: RePEc:cje:issued:v:45:y:2012:i:2:p:493-508
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    Citations

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    Cited by:

    1. Nitschka, Thomas, 2011. "Banking sectors' international interconnectedness: Implications for consumption risk sharing in Europe," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48684, Verein für Socialpolitik / German Economic Association.
    2. Paul De Grauwe & Yuemei Ji, 2016. "Flexibility Versus Stability: A Difficult Tradeoff in the Eurozone," Credit and Capital Markets, Credit and Capital Markets, vol. 49(3), pages 375-413.
    3. Devereux, Michael B. & Kollmann, Robert, 2012. "International Risk Sharing," MPRA Paper 70129, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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