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Did the Federal Reserve's MBS purchase program lower mortgage rates?

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  • Hancock, Diana
  • Passmore, Wayne
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    Abstract

    On November 25, 2008, the Federal Reserve announced it would purchase mortgage-backed securities (MBS). This program affected mortgage rates through three channels: (1) improved market functioning in both primary and secondary mortgage markets, (2) clearer government backing for Fannie Mae and Freddie Mac, and (3) anticipation of portfolio rebalancing effects. We use empirical pricing models for MBS yields and for mortgage rates to measure relative importance of channels: The first two were important during the height of the financial crisis, but the effects of the third depended on market conditions. Overall, the program put significant downward pressure on mortgage rates.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Monetary Economics.

    Volume (Year): 58 (2011)
    Issue (Month): 5 ()
    Pages: 498-514

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    Handle: RePEc:eee:moneco:v:58:y:2011:i:5:p:498-514

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    Web page: http://www.elsevier.com/locate/inca/505566

    Related research

    Keywords: MBS; Federal Reserve; GSEs; Mortgage;

    References

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    1. Swagel, Phillip, 2009. "The financial crisis: an inside view," MPRA Paper 21104, University Library of Munich, Germany.
    2. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011. "Large-scale asset purchases by the Federal Reserve: did they work?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 41-59.
    3. Diana Hancock & Wayne Passmore, 2010. "An analysis of government guarantees and the functioning of asset-backed securities markets," Finance and Economics Discussion Series 2010-46, Board of Governors of the Federal Reserve System (U.S.).
    4. Diana Hancock & Wayne Passmore, 2011. "Did the Federal Reserve's MBS purchase program lower mortgage rates?," Finance and Economics Discussion Series 2011-01, Board of Governors of the Federal Reserve System (U.S.).
    5. Roberto Perli & Brian Sack, 2003. "Does mortgage hedging amplify movements in long-term interest rates?," Finance and Economics Discussion Series 2003-49, Board of Governors of the Federal Reserve System (U.S.).
    6. AfDB AfDB, . "AfDB Group Annual Report 2008," Annual Report, African Development Bank, number 64 edited by Koua Louis Kouakou, 9.
    7. Jefferson Duarte, 2008. "The Causal Effect of Mortgage Refinancing on Interest Rate Volatility: Empirical Evidence and Theoretical Implications," Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1689-1731, July.
    8. Heuson, Andrea & Passmore, Wayne & Sparks, Roger, 2001. "Credit Scoring and Mortgage Securitization: Implications for Mortgage Rates and Credit Availability," The Journal of Real Estate Finance and Economics, Springer, vol. 23(3), pages 337-63, November.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Federal Reserve: Looking Back, Looking Forward
      by Guest Author in The Big Picture on 2014-01-04 10:00:00
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    Cited by:
    1. Chabot, Benjamin & Herman, Gabe, 2013. "A History of Large-Scale Asset Purchases before the Federal Reserve," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 140-152.
    2. John C. Williams, 2012. "The role of monetary policy in bolstering economic growth," Speech 114, Federal Reserve Bank of San Francisco.
    3. Gilchrist, Simon & Lopez-Salido, J. David & Zakrajsek, Egon, 2013. "Monetary Policy and Real Borrowing Costs at the Zero Lower Bound," Finance and Economics Discussion Series 2014-3, Board of Governors of the Federal Reserve System (U.S.).
    4. Bernanke, Ben S., 2012. "Monetary Policy since the Onset of the Crisis : a speech at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 31, 2012," Speech 645, Board of Governors of the Federal Reserve System (U.S.).
    5. Kandrac, John, 2013. "Have Federal Reserve MBS purchases affected market functioning?," Economics Letters, Elsevier, vol. 121(2), pages 188-191.
    6. Meixing Dai & Frédéric Dufourt & Qiao Zhang, 2013. "Large Scale Asset Purchases with Segmented Mortgage and Corporate Loan Markets," AMSE Working Papers 1336, Aix-Marseille School of Economics, Marseille, France, revised Jun 2013.
    7. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2012. "A global monetary tsunami? On the spillovers of US Quantitative Easing," CEPR Discussion Papers 9195, C.E.P.R. Discussion Papers.
    8. Walentin, Karl, 2013. "Business Cycle Implications of Mortgage Spreads," Working Paper Series 275, Sveriges Riksbank (Central Bank of Sweden), revised 01 Mar 2014.
    9. Benjamin M. Friedman, 2013. "The Simple Analytics of Monetary Policy: A Post-Crisis Approach," NBER Working Papers 18960, National Bureau of Economic Research, Inc.
    10. Hancock, Diana & Passmore, Wayne, 2014. "How the Federal Reserve's Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates," Finance and Economics Discussion Series 2014-12, Board of Governors of the Federal Reserve System (U.S.).
    11. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2013. "On the international spillovers of US quantitative easing," Working Paper Series 1557, European Central Bank.
    12. Silvio Contessi & Pierangelo De Pace & Massimo Guidolin, 2013. "How did the financial crisis alter the correlations of U.S. yield spreads?," Working Papers 2013-005, Federal Reserve Bank of St. Louis.
    13. Boyarchenko, Nina & Fuster, Andreas & Lucca, David O., 2014. "Understanding mortgage spreads," Staff Reports 674, Federal Reserve Bank of New York.
    14. Leippold, Markus & Strømberg, Jacob, 2014. "Time-changed Lévy LIBOR market model: Pricing and joint estimation of the cap surface and swaption cube," Journal of Financial Economics, Elsevier, vol. 111(1), pages 224-250.
    15. Bernanke, Ben S., 2014. "The Federal Reserve: Looking Back, Looking Forward : a speech at the Annual Meeting of the American Economic Association, Philadelphia, Pennsylvania, January 3, 2014," Speech 608, Board of Governors of the Federal Reserve System (U.S.).
    16. repec:fip:fedfsp:y:2012:i:nov2 is not listed on IDEAS

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