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Securitization and business cycle: an agent-based perspective

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  • Andrea Mazzocchetti
  • Marco Raberto
  • Andrea Teglio
  • Silvano Cincotti

Abstract

We study the effects of loans and mortgages securitization on business cycles by using a large-scale agent-based stock–flow consistent macroeconomic model and simulator. We enriched the model by including a financial vehicle corporation, which buys loans and mortgages from banks and issues asset-backed securities (ABSs) and mortgage-backed securities (MBSs), and a mutual fund, which invests both in ABSs and MBSs using its liquidity resources and issues new shares when in liquidity shortage. Households own the equity of the mutual fund in the form of equity shares. By means of securitization, banks conduct regulatory capital arbitrage and reduce risk-weighted assets in their balance sheet, thus being able to lend more loans and mortgages. Results show that different levels of securitization propensity are able to affect credit and business cycles in different manners. On one side, securitization increases banks’ lending activity, influencing positively investment and consumption. On the other side, the increased amount of credit amplifies negative shocks, due to higher loans’ write-offs probability triggered by the boosted lending 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 need them to purchase housing units. The effect of securitization on the economy critically depends on the level of securitization propensity and on the time span considered.

Suggested Citation

  • Andrea Mazzocchetti & Marco Raberto & Andrea Teglio & Silvano Cincotti, 2018. "Securitization and business cycle: an agent-based perspective," Industrial and Corporate Change, Oxford University Press, vol. 27(6), pages 1091-1121.
  • Handle: RePEc:oup:indcch:v:27:y:2018:i:6:p:1091-1121.
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    1. repec:oup:indcch:v:27:y:2018:i:6:p:999-1014. is not listed on IDEAS
    2. Bertani, Filippo & Ponta, Linda & Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2019. "An economy under the digital transformation," MPRA Paper 94205, University Library of Munich, Germany.
    3. Ermanno Catullo & Federico Giri & Mauro Gallegati, 2019. "Macro and Micro Prudential Policies: Sweet and Lowdown in a Credit Network Agent Based Model," Working Papers 434, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    4. repec:spr:italej:v:3:y:2017:i:3:d:10.1007_s40797-017-0065-z is not listed on IDEAS
    5. Eugenio Caverzasi & Alberto Russo, 2018. "Toward a new microfounded macroeconomics in the wake of the crisis," Industrial and Corporate Change, Oxford University Press, vol. 27(6), pages 999-1014.
    6. Mazzocchetti, Andrea & Lauretta, Eliana & Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2018. "Systemic Financial Risk Indicators and Securitised Assets: an Agent-Based Framework," MPRA Paper 89779, University Library of Munich, Germany.
    7. Giovanni Dosi & Andrea Roventini, 2017. "Agent-Based Macroeconomics and Classical Political Economy: Some Italian Roots," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(3), pages 261-283, November.

    More about this item

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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