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Report
Understanding the securitization of subprime mortgage credit
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 ...
Journal Article
A defense of AK growth models
AK growth models predict that permanent changes in government policies affecting investment rates should lead to permanent changes in a country?s GDP growth. Charles Jones (1995) sees no evidence for this prediction in data for 15 OECD countries after World War II: rates of investment, especially for equipment, have risen while GDP growth rates have not. This article provides evidence supporting the AK models? prediction. Data back to the 19th century show a strong positive relationship between investment rates and growth rates and short-lived deviations from trends. A strong positive ...