Interactions between mortgage and other capital markets in the USA: has financial deregulation made a difference?

The degree of short- and long-term interreactions between the mortgage and other capital markets in the USA is explored. The study also investigates whether financial market deregulation impacts the underlying interrelations. Theory alone provides little practical guidance on both issues. The empirical results are derived from monthly data using multivariate models and numerous sensitivity tests. The results consistently support regulators' common posture that the mortgage market is essentially localized over the long term. Nevertheless, the results do show that the mortgage market exhibits pronounced short-term interrelations with other capital markets, especially the long-term Treasury security market. Compelling evidence is also found that financial market deregulation had little impact on the degree of markets' interrelations.