Nonlinear Effects of Mortgage Spreads Over the Business Cycle

Chak Hung Jack Cheng () and Ching‐wai (jeremy) Chiu

Journal of Money, Credit and Banking, 2020, vol. 52, issue 6, 1593-1611

Abstract: This paper provides robust evidence for the nonlinear effects of mortgage spread shocks during recessions and expansions in the United States. Estimating a smooth‐transition vector autoregression (STVAR) model, we show that mortgage spread shocks hitting in a recessionary phase create significantly deeper and more protracted declines in consumption and housing market variables. In addition, we provide evidence that these mortgage spread shocks could be largely interpreted as credit supply shocks in the mortgage market. Our empirical results imply that unconventional monetary policy, such as the Federal Reserve's mortgage‐backed security purchase program, would be a more effective tool for stabilizing the economy during recessions than in expansions.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/jmcb.12635

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:52:y:2020:i:6:p:1593-1611

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().