Working Paper: NBER ID: w15626
Authors: Johannes C. Stroebel; John B. Taylor
Abstract: We examine the quantitative impact of the Federal Reserve's mortgage-backed securities (MBS) purchase program. We focus on how much of the recent decline in mortgage interest rate spreads can be attributed to these purchases. The question is more difficult than frequently perceived because of simultaneous changes in prepayment and default risks. When we control for these risks, we find evidence of statistically insignificant or small effects of the program. For specifications where the existence or announcement of the program appears to have lowered spreads, we find no separate effect of the size of the stock of MBS purchased by the Fed.
Keywords: Mortgage-Backed Securities; Federal Reserve; Interest Rates; Financial Crisis
JEL Codes: E52; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's MBS purchase program existence or announcement (E60) | mortgage interest rate spreads (G21) |
| volume of MBS purchased (E51) | mortgage interest rate spreads (G21) |
| Federal Reserve's MBS purchase program existence or announcement (E60) | decline in option-adjusted spreads (OAS) (G19) |
| decline in option-adjusted spreads (OAS) (G19) | explained by a general decline in risk (G40) |