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.

Securitization and business cycle: an agent-based perspective

Mazzocchetti, Andrea;Teglio, Andrea;
2018

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.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10278/3709608
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