How Quantitative Easing Works: Evidence on the Refinancing Channel
Name
DKP-QE.pdf
Description
Submitted version
Size
4.78 MB
Format
Adobe PDF
Checksum (MD5)
103609fd90b4b6eaf86ce5c24913d1f6
Author(s)
Di Maggio, Marco
Kermani, Amir
Palmer, Christopher John
Date Issued
2020
Journal
Review of Economic Studies
Publisher
Oxford University Press (OUP)
Citation
Di Maggio, Marco, Kermani, Amir and Palmer, Christopher John. 2020. "How Quantitative Easing Works: Evidence on the Refinancing Channel." Review of Economic Studies, 87 (3).
Version
Original manuscript
Abstract
© 2019 The Author(s) 2019. Published by Oxford University Press on behalf of The Review of Economic Studies Limited. We document the transmission of large-scale asset purchases by the Federal Reserve to the real economy using rich borrower-linked mortgage-market data and an identification strategy based on mortgage market segmentation. We find that central bank QE1 MBS purchases substantially increased refinancing activity, reduced interest payments for refinancing households, led to a boom in equity extraction, and increased aggregate consumption. Relative to QE-ineligible jumbo mortgages, QE-eligible conforming mortgage interest rates fell by an additional 40 bp and refinancing volumes increased by an additional 56% during QE1. We estimate that households refinancing during QE1 increased their durable consumption by 12%. Our results highlight that the transmission of unconventional monetary policy to the real economy depends crucially on the composition of assets purchased and the degree of segmentation in the market.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/RESTUD/RDZ060
