The Effects of Monetary Policy on Mortgage Rates

Patrabansh, Saty; Doerner, William M.; Asin, Samuel

doi:10.2139/ssrn.2533982

Cited by 4 publications

(5 citation statements)

References 26 publications

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“…Glick and Leduc (2012) consider the first principal component of yield changes of 2-, 5-, 10-and 30-year U.S. bond futures in a 2-hour window (Wright 2012) as the Fed's QE announcement shock and employ event studies to analyze QE announcement effects on the financial market. Patrabansh et al (2014) use the event study method to show how the 10-year Treasury yield responded to the Fed's QE announcement. Kozicki et al (2015) incorporate event studies with GARCH (1,1) model to analyze the Fed's LSAP announcement effects on commodity prices and international spillovers.…”

Section: Qe Announcement Effects Analysis Using Event Studiesmentioning

confidence: 99%

“…First, macroeconomic surprises are thought to have an impact on the interest rate. Patrabansh et al (2014) and Thornton (2017) mention the abnormal changes of Treasury rate were attributed to both QE announcements and macroeconomic news. However, Altavilla and Giannone (2017) show that the effects of macroeconomic shock were "marginal" on average and the estimation results did not change so much with the inclusion of surprise components.…”

Section: Adding More Controls Into the Modelmentioning

confidence: 99%

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

Wang¹

2019

IJFS

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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.

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Section: Qe Announcement Effects Analysis Using Event Studiesmentioning

confidence: 99%

Section: Adding More Controls Into the Modelmentioning

confidence: 99%

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

Wang¹

2019

IJFS

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“…The mortgage rate at each point of the Monte Carlo path is calculated using a linear regression model of the mortgage rate against the 10-year Treasury rate (see equation (6)). 30-year fixed-rate mortgage rates move closely in relation to long-term Treasury rates (14). The model is calibrated to data from 1990 to 2015, with results tabulated in Table 1.…”

Section: T Echnical Papermentioning

confidence: 99%

Evaluation of Mortgage Default Characteristics Using Fannie Mae’s Loan Performance Data

Ahlawat

2018

J Real Estate Finan Econ

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Mortgage default has been characterized as ruthless -or predominantly driven by the relation of house price to mortgage value -by proponents of the pure option-theoretic model and as non-ruthless by researchers who argue that transaction costs and other idiosyncratic factors determine when mortgage holders default. This work uses Fannie Mae loan performance data to present evidence supporting the hypothesis that a significant number of mortgage defaults are non-ruthless. It uses a new approach to track mortgages that are likely to default by tracking 90-day delinquent mortgages and studying which ones eventually default. It evaluates the joint put-call option embedded in a mortgage contract using a Monte Carlo simulation for the underlying stochastic variables. It identifies key differences between ruthless and non-ruthless mortgage defaults and illustrates the propensity of non-ruthless mortgage defaulters to become current on their 90-day delinquent mortgages. These observations provide valuable insights for policymakers and creditors in their task of structuring debt-relief programs for delinquent mortgage holders. It augments the analysis of mortgage defaults by considering the impact of loan-to-value ratio at mortgage origination.

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“…Glick and Leduc (2012) consider the first principal component of yield changes of 2-, 5-, 10-and 30-year U.S. bond futures in a 2-hour window (Wright, 2012) as the Fed's QE announcement shock and employ event studies to analyze QE announcement effects on financial market. Patrabansh et al (2014) use event study method to show how the 10-year Treasury yield responded to the Fed's QE announcement. Kozicki, Santor and Suchanek (2015) incorporate event studies with GARCH (1,1) model to analyze the Fed's LSAP announcement effects on commodity prices and international spillovers.…”

Section: Qe Announcement Effects Analysis Using Event Studiesmentioning

confidence: 99%

“…First, macroeconomic surprises are thought to have impact on interest rate. Patrabansh et al (2014) and Thornton (2017) mention the abnormal changes of Treasury rate were attributed to both QE announcements and macroeconomic news. However, Altavilla and Giannone (2017) show that the effects of macroeconomic shock were "marginal" on average and the estimation results did not change so much with the inclusion of surprise components 29 .…”

Section: Adding More Controls Into the Modelmentioning

confidence: 99%

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

Wang¹

2018

Preprint

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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.

show abstract

The Effects of Monetary Policy on Mortgage Rates

Cited by 4 publications

References 26 publications

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

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

Evaluation of Mortgage Default Characteristics Using Fannie Mae’s Loan Performance Data

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

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