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Mortgage loan securitization and personal consumption smoothening

Author

Listed:
  • Jenny Gu

    (University of Dallas)

  • Rodrigo J. Hernandez

    (Radford University)

  • Pu Liu

    (University of Arkansas)

  • Yingying Shao

    (Towson University)

Abstract

In this paper we examine the extent to which personal consumptions are sheltered from state-specific economic shocks because of banks’ mortgage loan securitizations. We posit that securitization contributes to personal consumption smoothening due to securitizations’ positive effect on banks’ credit supply, which reduces consumers’ consumption constraints during economic shocks. Using data for U. S. banks’ mortgage loan securitizations from 1989 to 2008, we show that personal consumption smoothening is positively related to securitization. The finding of a significant relationship between loan securitizations and consumption smoothening contributes to the continuing debate on the role of financial innovation in real economy.

Suggested Citation

  • Jenny Gu & Rodrigo J. Hernandez & Pu Liu & Yingying Shao, 2017. "Mortgage loan securitization and personal consumption smoothening," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 100-115, January.
    • Handle: RePEc:spr:jecfin:v:41:y:2017:i:1:d:10.1007_s12197-015-9338-2
    DOI: 10.1007/s12197-015-9338-2
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    References listed on IDEAS

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    Cited by:

    1. Xinkuo Xu & Liyan Han, 2017. "Diverse Effects of Consumer Credit on Household Carbon Emissions at Quantiles: Evidence from Urban China," Sustainability, MDPI, vol. 9(9), pages 1-25, September.

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    More about this item

    Keywords

    Securitization; Mortgage loans; Consumption smoothening;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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