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

44 Pages Posted: 7 Feb 2014

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: January 29, 2014

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.

Keywords: Monetary policy, QE1, QE2, QE3, LSAP, MBS, mortgages

JEL Classification: E5, E52, E58, G01, G21, G28

Suggested Citation

Hancock, Diana and Passmore, Stuart Wayne, How the Federal Reserve's Large-Scale Asset Purchases (LSAPs) Influence Mortgage-Backed Securities (MBS) Yields and U.S. Mortgage Rates (January 29, 2014). FEDS Working Paper No. 2014-12, Available at SSRN: https://ssrn.com/abstract=2391966 or http://dx.doi.org/10.2139/ssrn.2391966

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)

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