The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach

Gang Wang
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Gang Wang: Department of Economics, The College of Wooster, 206 Morgan Hall, Wooster, OH 44691, USA

IJFS, 2019, vol. 7, issue 1, 1-30

Abstract: This paper uses event study analysis to estimate the impact of the United States Federal Reserve Bank’s (Fed) quantitative easing (QE) announcements on the mortgage market during the zero lower bound (ZLB) period. A total of 35 QE announcements are identified and their effects are evaluated. The best-fitting integrated generalized autoregressive conditional heteroskedasticity (IGARCH) model with skewed t distribution is used to measure the QE announcement effects on daily changes of the 30-year mortgage rate, the 30-year Treasury rate and the spread between them. Announcements suggesting the start of a new round of QE reduced the mortgage rate tremendously, while the effects of further news diminished. Announcements of an increase in mortgage-backed security purchases decreased the mortgage rate more than the Treasury rate and reduced the credit risk of holding mortgage securities over Treasury securities. The delayed effects of QE announcements on the mortgage rate were less than short-run effects but persistent. We also find that the previous literature overestimates QE effects on interest rates in general.

Keywords: event studies; the Fed; GARCH; Monetary Policy; mortgage; Quantitative Easing (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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