Preprint Article Version 1 This version is not peer-reviewed

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

Version 1 : Received: 2 November 2018 / Approved: 9 November 2018 / Online: 9 November 2018 (10:22:58 UTC)

How to cite: Wang, G. The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach. Preprints 2018, 2018110243 (doi: 10.20944/preprints201811.0243.v1). Wang, G. The Effects of Quantitative Easing Announcements on the Mortgage Market: An Event Study Approach. Preprints 2018, 2018110243 (doi: 10.20944/preprints201811.0243.v1).

Abstract

This paper uses event study analysis to estimate the impact of the Fed’s Quantitative Easing (QE) announcements on the mortgage market during zero lower bound period. A total of 35 QE announcements are identified and their effects are evaluated. The best-fitting 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 long run effects of QE announcements on the mortgage rate were less than short run effects but persistent. We also find that the previous literature overestimate QE effects on interest rates in general.

Subject Areas

Event Studies, the Fed, GARCH, Monetary Policy, Mortgage, Quantitative Easing

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