The Federal Reserve's Portfolio and its Effects on Mortgage Markets

32 Pages Posted: 10 May 2012

See all articles by Diana Hancock

Diana Hancock

Federal Reserve Board - Division of Research and Statistics

S. Wayne Passmore

Board of Governors of the Federal Reserve - Household and Real Estate Finance Section

Date Written: March 6, 2012

Abstract

We provide an empirical analysis of the effects of the Federal Reserve's asset holdings on MBS yields and mortgage rates. We argue that understanding the particulars of the U.S. mortgage markets, particularly the linkages between the secondary and primary mortgage markets, is important. We find evidence that the Federal Reserve's portfolio holdings influence mortgage markets, through both a "portfolio balancing channel" and an "excess reserves" channel. These two channels can work in opposite directions and their magnitudes are difficult to estimate, but on net, larger Federal Reserve's portfolio holdings seem to have placed a significant downward influence on MBS yields and mortgage rates.

Keywords: QE1, QE2, Federal Reserve, MBS, mortgage, interest rates, mortgage rate

JEL Classification: E52, E58, G01, G21

Suggested Citation

Hancock, Diana and Passmore, Stuart Wayne, The Federal Reserve's Portfolio and its Effects on Mortgage Markets (March 6, 2012). FEDS Working Paper No. 2012-22, Available at SSRN: https://ssrn.com/abstract=2055217 or http://dx.doi.org/10.2139/ssrn.2055217

Diana Hancock

Federal Reserve Board - Division of Research and Statistics ( email )

20th & C. St., N.W.
Washington, DC 20551
United States
202-452-3019 (Phone)
202-452-5295 (Fax)

Stuart Wayne Passmore (Contact Author)

Board of Governors of the Federal Reserve - Household and Real Estate Finance Section ( email )

Washington, DC 20551
United States
202-452-6432 (Phone)
202-452-3819 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
93
Abstract Views
636
rank
306,414
PlumX Metrics