CHINA FINANCIAL RESEARCH NETWORK
2008-09-07 第1卷 第1期
Atif R. Mian
University of ChicagoGraduate School of Business
Federal Reserve Bank of St. LouisBanking Supervision and Regulation
Bank of Finland
Tomasz J. Kozluk
Organisation for Economic Co-operation and Development
Federal Reserve Bank of New YorkFinancial Intermediation Function
Atif R. Mian University of ChicagoGraduate School of Business
We conduct a within-county analysis using detailed zip code level data to document new findings regarding the origins of the biggest financial crisis since the Great Depression. The recent sharp increase in mortgage defaults is significantly amplified in subprime zip codes that experience an unprecedented relative growth in mortgage credit from 2002 to 2005. This expansion in mortgage credit to subprime zip codes occurs despite sharply declining relative (and in some cases absolute) income growth in these neighborhoods. In fact, 2002 to 2005 is the only period in the last 18 years when income and mortgage credit growth are negatively correlated. We show that the expansion in mortgage credit to subprime zip codes and its dissociation from income growth is closely correlated with the increase in securitization of subprime mortgages. Finally, we show that all of our key findings hold in markets with very elastic housing supply that have low house price growth during the credit expansion years. Overall, our findings favor a supply-based explanation for credit expansion over income-based or house price expectations-based hypotheses.
Yuliya Demyanyk Federal Reserve Bank of St. LouisBanking Supervision and Regulation
Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and house price appreciation since origination. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005.
Tuuli Koivu Bank of Finland
Chinese authorities have traditionally relied mainly on administrative and quantitative measures in conducting monetary policy, with interest rates playing a less prominent role. Additional support for this view resides in a number of earlier studies that have found that the impact of interest rates on the real economy has been miniscule. However, taking into account numerous reforms in the financial sector and more widely in the Chinese economy, interest rates may have gained some influence in the last few years. It is important to study the effectiveness of interest rates also in light of future reforms of the monetary policy tools in China. Whereas administrative policy measures were effective in guiding the behaviour of state-owned enterprises, the authorities may need to increase the use of more market-oriented monetary policy tools as the share of the economy in private and foreign ownership grows. We use a vector error correction model to study, within a credit demand framework, whether the impact of interest rates in China has become stronger over the last decade. Our results suggest that loan demand has indeed become more dependent on interest rates, albeit the channel from interest rate to the real economy is still weak.
Tomasz J. Kozluk Organisation for Economic Co-operation and Development
We study the effects of Chinese monetary policy shocks on China's major trading partners in East Asia by estimating structural vector autoregressive (SVAR) models for six economies in the region. We find that a monetary expansion in Mainland China leads to an increase in real GDP (temporary) and the price level (permanent) in a number of economies in our sample, most notably in Hong Kong and the Philippines. The impact could result from intertemporal substitution present in a general equilibrium framework which allows for positive domestic impacts of foreign monetary expansions. Our results emphasize the growing importance of China for its neighboring economies and the significance of Chinese shocks for the design of monetary policy in Asian economies.
Adam Ashcraft Federal Reserve Bank of New YorkFinancial Intermediation Function
In this paper, we provide an overview of the subprime mortgage securitization process and the seven key informational frictions that arise. We discuss the ways that market participants work to minimize these frictions and speculate on how this process broke down. We continue with a complete picture of the subprime borrower and the subprime loan, discussing both predatory borrowing and predatory lending. We present the key structural features of a typical subprime securitization, document how rating agencies assign credit ratings to mortgage-backed securities, and outline how these agencies monitor the performance of mortgage pools over time. Throughout the paper, we draw upon the example of a mortgage pool securitized by New Century Financial during 2006.
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