Innovations in Mortgage Finance and the Onset of the Great Recession in a Small Open Economy with a Euro Peg

Thomas Barnebeck Andersen; Nikolaj Malchow-Møller

doi:10.1057/ces.2015.10

Innovations in Mortgage Finance and the Onset of the Great Recession in a Small Open Economy with a Euro Peg

Thomas Barnebeck Andersen, Nikolaj Malchow-Møller

Research output: Contribution to journal › Journal article › Research › peer-review

Abstract

The Global Financial Crisis (GFC) of 2008 hit Denmark particularly hard. In this paper we argue that a combination of innovation in mortgage finance and the need to defend a euro-exchange rate peg was partly responsible. Sustained pressure against the Danish krone forced the central bank to increase policy interest rates consecutively in the last quarter of 2008. Monetary tightening in the midst of the GFC deepened the ongoing recession for the usual Keynesian aggregate demand reasons. Innovations in mortgage finance, which had made the economy more sensitive to changes in the policy rate, exacerbated this effect.

Original language	English
Journal	Comparative Economic Studies
Volume	57
Issue number	December
Pages (from-to)	711-734
ISSN	0888-7233
DOIs	https://doi.org/10.1057/ces.2015.10
Publication status	Published - 1. Dec 2015

Keywords

adjustable-rate mortgages
currency peg
financial innovation
global financial crisis
great recession

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10.1057/ces.2015.10

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