Estimated Impact of the Fed's Mortgage-Backed Securities Purchase Program
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.
We would like to thank Jim Dignan, Peter Frederico, Frank Nothaft and Josie Smith for helpful comments. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.