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Estimated Impact of the Federal Reserve’s Mortgage-Backed Securities Purchase Program

Author

Listed:
  • Johannes Stroebel

    (Stanford University)

  • John B. Taylor

    (Stanford University)

Abstract

The largest credit or liquidity program created by the Federal Reserve during the financial crisis was the mortgagebacked securities (MBS) purchase program. In this paper, we examine the quantitative impact of this program on mortgage interest rate spreads. This is more difficult than frequently perceived because of simultaneous changes in prepayment risk and default risk. Our empirical results attribute a sizable portion of the decline in mortgage rates to such risks and a relatively small and uncertain portion to the program. For specifications where the existence or announcement of the program appears to have lowered spreads, we find no separate effect of the stock of MBS purchased by the Federal Reserve.

Suggested Citation

  • Johannes Stroebel & John B. Taylor, 2012. "Estimated Impact of the Federal Reserve’s Mortgage-Backed Securities Purchase Program," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 1-42, June.
    • Handle: RePEc:ijc:ijcjou:y:2012:q:2:a:1
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    References listed on IDEAS

    as
    1. 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.
    2. Aït-Sahalia, Yacine & Andritzky, Jochen & Jobst, Andreas & Nowak, Sylwia & Tamirisa, Natalia, 2012. "Market response to policy initiatives during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 162-177.
    3. Andreas Fuster & Paul S. Willen, 2010. "$1.25 Trillion is still real money : some facts about the effects of the Federal Reserve’s mortgage market investments," Public Policy Discussion Paper 10-4, Federal Reserve Bank of Boston.
    4. Burcu Duygan-Bump & Patrick Parkinson & Eric Rosengren & Gustavo A. Suarez & Paul Willen, 2013. "How Effective Were the Federal Reserve Emergency Liquidity Facilities? Evidence from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility," Journal of Finance, American Finance Association, vol. 68(2), pages 715-737, April.
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    More about this item

    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
    • G01 - Financial Economics - - General - - - Financial Crises

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