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

42 Pages Posted: 23 Aug 2018 Last revised: 21 Feb 2019

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: 2018-08-01

Abstract

We study how the Federal Reserve's quantitative easing (QE) influenced the behavior of Agency mortgage real estate investment trusts (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 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 (2018-08-01). FRB Atlanta Working Paper No. 2018-8. Available at SSRN: https://ssrn.com/abstract=3237293 or http://dx.doi.org/10.29338/wp2018-08

W. Scott Frame (Contact Author)

Federal Reserve Bank of Dallas ( email )

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

Eva Maria Steiner

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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