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How the Federal Reserve's Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates

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  • Hancock, Diana

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Passmore, Wayne

    () (Board of Governors of the Federal Reserve System (U.S.))

Abstract

We conduct an empirical analysis of the Federal Reserve's large-scale asset purchases (LSAPs) on MBS yields and mortgage rates. The Federal Reserve's accumulation of MBS and Treasury securities lowered MBS yields and mortgage rates by more than what would have been suggested by changes in market expectations alone, suggesting that portfolio rebalancing effects of LSAPs are an important consideration for monetary policy transmission. Our estimates also suggest that the Federal Reserve must hold a substantial market share of agency MBS or of Treasury securities to significantly lower MBS yields and in turn significantly lower mortgage rates.

Suggested Citation

  • 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.).
  • Handle: RePEc:fip:fedgfe:2014-12
    as

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    References listed on IDEAS

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    Keywords

    Monetary policy; QE1; QE2; QE3; LSAP; MBS; mortgages;

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