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Mortgage-Backed Securities (MBS): Is It a Curse or a Blessing for the Australian Home Loan Market? A Natural Experiment

Nabin,MH, Bhattacharya,S and Rafiq,S 2015, Mortgage-Backed Securities (MBS): Is It a Curse or a Blessing for the Australian Home Loan Market? A Natural Experiment, Australian Economic Papers, vol. 54, no. 2, pp. 104-120, doi: 10.1111/1467-8454.12044.

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Title Mortgage-Backed Securities (MBS): Is It a Curse or a Blessing for the Australian Home Loan Market? A Natural Experiment
Author(s) Nabin,MHORCID iD for Nabin,MH orcid.org/0000-0003-1680-0582
Bhattacharya,SORCID iD for Bhattacharya,S orcid.org/0000-0001-6587-2879
Rafiq,SORCID iD for Rafiq,S orcid.org/0000-0002-2109-7441
Journal name Australian Economic Papers
Volume number 54
Issue number 2
Start page 104
End page 120
Publisher Wiley
Publication date 2015-06
ISSN 0004-900X
Keyword(s) Mortgage-backed securities
Australian home loan market
Summary The Australian home loan market has seen a significant and persistent boom over more than two decades. Theextant literature exploring the underlying factors explaining this boom has predominantly looked at thedemand side rather than the supply side. In this paper, we look at a major supply-side issue, the introductionof mortgage-backed securities and its likely impact on the home loan market. In doing so, we have developeda mathematical model that theorises this likely relationship. Our mathematical model predicts possibleexistence of an unstable equilibrium in the home loan market in the presence of mortgage-backed securities.We have subsequently backed up our theoretical exercise with sound empirical evidence acquired andanalysed as a natural experiment in the Australian scenario using quarterly market data on home loans andmortgage-backed securities data for a 36-year period from 1976 to 2012. Using unknown structural breaktests, we have identified significant breaks around late 1992 to mid-1995, clearly indicating that there weresignificant changes in the housing market due to the introduction of mortgage-backed securities in early1993. We have also performed a stability test confirming that under certain conditions this market canbecome unstable.
DOI 10.1111/1467-8454.12044
Field of Research 140104 Microeconomic Theory
Socio Economic Objective 910299 Microeconomics not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Wiley
Persistent URL http://hdl.handle.net/10536/DRO/DU:30074118

Document type: Journal Article
Collection: Deakin Graduate School of Business
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