|
|||||
|
|
CASH-FLOW TRANCHING AND THE MACROECONOMY |
|
| Authors: | Pedro S Amaral Dean Corbae Erwan Quintin |
| Institution: | 1. California State University, Fullerton, U.S.A.;2. University of Wisconsin–Madison, U.S.A.;3. University of Wisconsin–Madison, U.S.A.
We thank the editor and two anonymous referees. In addition, we thank our discussant Nicolas Caramp as well as Andy Atkeson, Roozbeh Hosseini, Vincenzo Quadrini, José-Víctor Ríos-Rull, Robert Townsend, and seminar participants and attendees at the Society for Economic Dynamics meetings, the California Macroeconomics Conference, the Federal Reserve Bank of Atlanta, the University of California Riverside, and the University of Southern 4. California. |
| Abstract: | The volume of cash-flow transformation activities has grown markedly over the past few decades. We develop a dynamic model that characterizes the effects of changes in the costs and benefits of security creation. Lower tranching costs and increases in foreign appetite for safe assets can both increase costly security creation with positive effects on GDP and have diverse macroeconomic implications. Whereas the former counterfactually increases yields, the latter lowers them and also raises rents associated with cash-flow transformation. These two features, as well as other subsidiary implications of increased foreign demand, are consistent with recent U.S. data. |
| Keywords: | |