Mortgage loan securitization and personal consumption smoothening

Jenny Gu (), Rodrigo Hernandez, Pu Liu () and Yingying Shao ()
Additional contact information
Jenny Gu: University of Dallas
Pu Liu: University of Arkansas
Yingying Shao: Towson University

Journal of Economics and Finance, 2017, vol. 41, issue 1, No 5, 100-115

Abstract: 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.

Keywords: Securitization; Mortgage loans; Consumption smoothening (search for similar items in EconPapers)
JEL-codes: G18 G21 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12197-015-9338-2

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