Innovations in mortgage finance and the onset of the Great.pdf

Innovations in mortgage finance and the onset of the Great Recession in a small open economy with a euro peg by Thomas Barnebeck Andersen and Nikolaj Malchow-Møller Discussion Papers on Business and Economics No. 5/20 15 FURTHER INFORMATION Department of Business and Economics Faculty of Business and Social Sciences University of Southern Denmark Campusvej 55, DK-5230 Odense M Denmark E-mail: lho@sam.sdu.dk / http://www.sdu.dk/ivoe Innovations in mortgage finance and the onset of the Great Recession in a small open economy with a euro peg Thomas Barnebeck Andersen and Nikolaj Malchow-Møller Department of Business and Economics, University of Southern Denmark 7 March 2015 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