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Have Federal Reserve MBS purchases affected market functioning?

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  • Kandrac, John

Abstract

Beginning in October 2011, the Federal Reserve began ongoing purchases of Mortgage Backed Securities (MBS). I test the extent to which these purchases were associated with disruptions in indicators of market functioning by using daily data on Federal Reserve MBS purchase operations. I find that two separate proxies for market functioning show adverse responses to Federal Reserve purchases that appear to be most closely linked to the additional open-ended MBS purchase program announced in September 2012. However, the magnitude of the disruption in market functioning appears to be quite modest.

Suggested Citation

  • Kandrac, John, 2013. "Have Federal Reserve MBS purchases affected market functioning?," Economics Letters, Elsevier, vol. 121(2), pages 188-191.
    • Handle: RePEc:eee:ecolet:v:121:y:2013:i:2:p:188-191
    DOI: 10.1016/j.econlet.2013.08.011
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    References listed on IDEAS

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    1. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
    2. Hancock, Diana & Passmore, Wayne, 2011. "Did the Federal Reserve's MBS purchase program lower mortgage rates?," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 498-514.
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    Cited by:

    1. Yuriy Kitsul & Marcelo Ochoa, 2016. "Funding Liquidity Risk and the Cross-section of MBS Returns," Finance and Economics Discussion Series 2016-052, Board of Governors of the Federal Reserve System (U.S.).
    2. Chikashi Tsuji, 2016. "Did the expectations channel work? Evidence from quantitative easing in Japan, 2001–06," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1210996-121, December.
    3. Lena Boneva & David Elliott & Iryna Kaminska & Oliver Linton & Nick McLaren & Ben Morley, 2022. "The Impact of Corporate QE on Liquidity: Evidence from the UK," The Economic Journal, Royal Economic Society, vol. 132(648), pages 2615-2643.
    4. Mr. Fei Han & Dulani Seneviratne, 2018. "Scarcity Effects of Quantitative Easing on Market Liquidity: Evidence from the Japanese Government Bond Market," IMF Working Papers 2018/096, International Monetary Fund.
    5. Boneva, Lena & Islami, Mevlud & Schlepper, Kathi, 2021. "Liquidity in the German corporate bond market: Has the CSPP made a difference?," Discussion Papers 08/2021, Deutsche Bundesbank.
    6. Pick-Schen Yip & Wee-Yeap Lau & Robert Brooks, 2023. "The Liquidity Effect of the U.S. QE on Sovereign Yield Spreads of Commodity-Exporting Countries," Commodities, MDPI, vol. 2(2), pages 1-16, April.
    7. Christensen, Jens H.E. & Gillan, James M., 2022. "Does quantitative easing affect market liquidity?," Journal of Banking & Finance, Elsevier, vol. 134(C).

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    More about this item

    Keywords

    LSAP; Quantitative easing; Monetary policy; MBS; Market functioning; Open market operations;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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