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Policy-makers have attributed the scale of the credit crisis and its profound impact on money markets (as well as financial sector stability) to the fast rise of securitization and the way it has arguably complicated both the conduct of monetary policy and the effect of interest rate transmission to the real economy. In our study, we examine whether financial innovation, specifically through securitization, has altered the nature of some macro-financial linkages, often with considerable policy implications. We find that securitization activity in the United States (mature market) and South Africa (emerging market) has indeed dampened the interest rate elasticity of real output via the balance sheet channel (while decreasing the interest rate pass-through from policy rates to market rates). That being said, current reservations about securitization do not invalidate the fact that securitization activity helps cushion the immediate impact of interest rate shocks to loan origination, which might be particularly effective in EM countries where poorly developed capital markets provide few alternatives to bank lending.

Finance --- Business & Economics --- Financial Management & Planning --- Financial crises. --- Asset-backed financing. --- Asset-backed securities --- Asset-based financing --- Asset securitization --- Securitization, Asset --- Crashes, Financial --- Crises, Financial --- Financial crashes --- Financial panics --- Panics (Finance) --- Stock exchange crashes --- Stock market panics --- Corporations --- Covered bonds --- Crises --- Accounting --- Banks and Banking --- Investments: General --- Industries: Financial Services --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- International Economic Order and Integration --- International Monetary Arrangements and Institutions --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Interest Rates: Determination, Term Structure, and Effects --- Public Administration --- Public Sector Accounting and Audits --- Investment & securities --- Financial reporting, financial statements --- Banking --- Securitization --- Real interest rates --- Financial statements --- Central bank policy rate --- Financial services --- Financial institutions --- Public financial management (PFM) --- Asset-backed financing --- Interest rates --- Finance, Public --- United States