Conservatorship, Quantitative Easing, and Mortgage Spreads: A New Multi-Equation Score-Driven Model of Policy Actions

Posted: 23 Jun 2021

See all articles by Szabolcs Blazsek

Szabolcs Blazsek

Independent

Adam Kobor

New York University (NYU)

Virág Blazsek

University of Leeds School of Law; United Nations Joint Staff Pension Fund - Office of Investment Management; George Washington University Law School

Date Written: March 20, 2021

Abstract

This paper studies how United States (US) policy actions impacted mortgage-backed securities (MBS) investors and mortgage borrowers during the subprime mortgage crisis of 2007 to 2010. The effects of the following policy actions on MBS spreads and mortgage lending spreads are studied: (i) US Government conservatorship of Fannie Mae and Freddie Mac; (ii) US Federal Reserve quantitative easing (QE) programs. We provide the following contributions: (i) The novel multi-equation score-driven t-QVARMA (quasi-vector autoregressive moving average) model of the multivariate t-distribution is used for the robust measurement of policy effects. (ii) In addition to the effects of QE, the effects of government conservatorship are also measured. (iii) The data period of the relevant literature is extended to March 2020, which provides a larger sample size for the pre-crisis and post-crisis periods. The results indicate that both policy actions significantly reduced MBS and mortgage lending spreads.

Keywords: Government-Sponsored Enterprises, Quantitative Easing, Conservatorship, Mortgage-Backed Securities, Dynamic Conditional Score, Generalized Autoregressive Score, United States

JEL Classification: C32, C52, E52, E58, G21, G28

Suggested Citation

Blazsek, Szabolcs and Kóbor, Ádám and Blazsek, Virág, Conservatorship, Quantitative Easing, and Mortgage Spreads: A New Multi-Equation Score-Driven Model of Policy Actions (March 20, 2021). Available at SSRN: https://ssrn.com/abstract=3866085

Ádám Kóbor

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
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Virág Blazsek

University of Leeds School of Law ( email )

Leeds LS2 9JT
United Kingdom

United Nations Joint Staff Pension Fund - Office of Investment Management ( email )

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New York, NY 10017
United States
347.334.0741 (Phone)

HOME PAGE: http://https://virag-blazsek.com/

George Washington University Law School ( email )

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Washington, DC 20052
United States

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