Deakin University
Browse

File(s) under permanent embargo

Mortgage-Backed Securities (MBS): Is it a curse or a blessing for the Australian home loan market? A natural experiment

journal contribution
posted on 2015-06-01, 00:00 authored by Munirul NabinMunirul Nabin, Sukanto BhattacharyaSukanto Bhattacharya, Shuddha RafiqShuddha Rafiq
The Australian home loan market has seen a significant and persistent boom over more than two decades. The extant literature exploring the underlying factors explaining this boom has predominantly looked at the demand side rather than the supply side. In this paper, we look at a major supply-side issue, the introduction of mortgage-backed securities and its likely impact on the home loan market. In doing so, we have developed a mathematical model that theorises this likely relationship. Our mathematical model predicts possible existence 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 and analysed as a natural experiment in the Australian scenario using quarterly market data on home loans and mortgage-backed securities data for a 36-year period from 1976 to 2012. Using unknown structural break tests, we have identified significant breaks around late 1992 to mid-1995, clearly indicating that there were significant changes in the housing market due to the introduction of mortgage-backed securities in early 1993. We have also performed a stability test confirming that under certain conditions this market can become unstable.

History

Journal

Australian Economic Papers

Volume

54

Pagination

104-120

ISSN

0004-900X

eISSN

1467-8454

Language

English

Publication classification

C1 Refereed article in a scholarly journal, C Journal article

Copyright notice

2015, Wiley

Issue

2

Publisher

WILEY