Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage REITs

42 Pages Posted: 22 Jun 2018

See all articles by W. Scott Frame

W. Scott Frame

Federal Reserve Bank of Dallas

Eva Steiner

Cornell SC Johnson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: June 6, 2018

Abstract

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

Frame, W. Scott and Steiner, Eva Maria, Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage REITs (June 6, 2018). Available at SSRN: https://ssrn.com/abstract=3191945 or http://dx.doi.org/10.2139/ssrn.3191945

W. Scott Frame

Federal Reserve Bank of Dallas ( email )

2200 N Pearl Street
Dallas, TX 75201
United States
214-922-6984 (Phone)

Eva Maria Steiner (Contact Author)

Cornell SC Johnson College of Business ( email )

465B Statler Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sha.cornell.edu/faculty-research/faculty/ems457/

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