Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage Reits
42 Pages Posted: 23 Aug 2018 Last revised: 21 Feb 2019
Date Written: 2018-08-01
We study how the Federal Reserve's quantitative easing (QE) influenced the behavior of Agency mortgage real estate investment trusts (REITs)â€”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 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