Gaetano Antinolfi and Celso Brunetti
Abstract: The volatility of aggregate economic activity in the United States decreased markedly in the mid eighties. The decrease involved several components of GDP and has been linked to a more stable economic environment, identified by smaller shocks and more effective policy, and a diverse set of innovations related to inventory management as well as financial markets. We document a negative relation between the volatility of GDP and some of its components and one such financial development: the emergence of mortgage-backed securities. We also document that this relationship changed sign, from negative to positive, in the early 2000's.
Keywords: Mortgage backed securities, volatility, great moderationFull paper (953 KB PDF)