The Federal Reserve's Portfolio and its Effects on Mortgage Markets
32 Pages Posted: 10 May 2012
Date Written: March 6, 2012
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: Suggested Citation