Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage REITs
42 Pages Posted: 22 Jun 2018
Date Written: June 6, 2018
We study how the Federal Reserve’s quantitative easing (QE) influenced the behavior of Agency mortgage REITs – a set of institutions identified by the Financial Stability Oversight Council as posing systemic risk. We document that Agency mortgage REITs:
(i) equity prices reacted to QE announcements and in a manner consistent with their business prospects;
(ii) grew markedly during QE2 and receded during QE3 in relation to the Federal Reserve’s Agency MBS purchase activity; and
(iii) increased their leverage during QE3.
Our findings are consistent with unconventional monetary policy actions crowding-out of private investment and “reaching for yield” behavior by financial institutions.
Keywords: Quantitative Easing, Risk-Taking, REITs, GSEs, Mortgages, Securitization
JEL Classification: E58, G21, G23, G28
Suggested Citation: Suggested Citation