U.S. Monetary Policy Surprises and Mortgage Rates

Real Estate Economics, Forthcoming

Posted: 11 Aug 2011

See all articles by Tracy Xu

Tracy Xu

University of Denver

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance

Yang Jiang

University of Groningen - Faculty of Economics and Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 11, 2011

Abstract

This paper examines how the U.S. monetary policy surprises impact the mortgage rates in the nation and across five regions from 1990 to 2008. Regression analysis based on bootstrapping shows that surprises in the target federal funds rate (the target factor) have a significantly positive impact on the 1-year adjustable-rate mortgage (ARM) rate within the week of the FOMC announcements and the positive impact lasts up to one week after the announcements. Surprises in the future direction of the Federal Reserve monetary policy (the path factor) have significantly positive impacts on both the 1-year ARM rate and the 30-year fixed mortgage rates in the first week after the announcement. Furthermore, the responses of mortgage rates are asymmetric and affected by the size of monetary policy surprises, the stage of the business cycle and whether the monetary policy is tightening or loosening. There also exists heterogeneity in the mortgage rate pass-through process across regions and monetary policy surprises have differential impacts on the regional mortgage rates. The cross-region variations are mainly correlated with the regional housing market conditions, such as home vacancy and rental vacancy rates.

Keywords: monetary policy, FOMC statements, asymmetry, mortgage rates, two-factor empirical specification

JEL Classification: G14, G21, E44, E52

Suggested Citation

Xu, Tracy and Han, Yufeng and Jiang, Yang, U.S. Monetary Policy Surprises and Mortgage Rates (August 11, 2011). Real Estate Economics, Forthcoming , Available at SSRN: https://ssrn.com/abstract=1908369

Tracy Xu (Contact Author)

University of Denver ( email )

2201 S. Gaylord St
Denver, CO 80208-2685
United States

Yufeng Han

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Yang Jiang

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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