Cointegration and causal relations in mortgage and capital markets

Abstract

In years past, credit rationing resulted in the primary mortgage market being “segmented” from national capital markets. Some research suggests that the deregulation of depository institutions in the early 1980s along with the exponential growth in the secondary mortgage market, has resulted in a primary mortgage market more fully integrated with national capital markets. This study employs Granger Causality to test primary and secondary mortgage market segmentation. Our findings support the conclusion that causality is unidirectional from the treasury market to the primary and secondary mortgage market. The results also indicate that mortgage market speed of adjustment increased significantly by the end of the decade.