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Securitization of subprime credit and the propagation of housing shocks

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  • Yamout, Nadine

Abstract

The 2007–2009 global financial crisis which originated in the U.S. subprime mortgage market and then spread to the whole financial system, drew attention to the impact that subprime lending and subprime mortgage securitization can have on the real economy. This paper explores the dynamics of the economy with a subprime mortgage market and the financial innovation in that sector when housing shocks arise. I develop a DSGE model with different types of borrowers and a shadow banking sector that is involved in subprime lending and securitization activities. The model shows that the process of securitizing risky credit amplifies the propagation of housing shocks in the economy through creating a link between the financial sector and the real sector.

Suggested Citation

  • Yamout, Nadine, 2023. "Securitization of subprime credit and the propagation of housing shocks," Journal of Economics and Business, Elsevier, vol. 125.
    • Handle: RePEc:eee:jebusi:v:125-126:y:2023:i::s0148619523000206
    DOI: 10.1016/j.jeconbus.2023.106127
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    More about this item

    Keywords

    DSGE model; Subprime lending; Mortgage securitization; Financial crisis; Business cycle fluctuations;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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