Working Paper

Unconventional Monetary Policy and Risk-Taking: Evidence from Agency Mortgage REITs


Abstract: We study how the Federal Reserve's quantitative easing (QE) influenced the behavior of Agency mortgage real estate investment trusts (REITs)?a set of institutions identified by the Financial Stability Oversight Council as posing systemic risk. We document that Agency mortgage REITs: [i] equity prices reacted to QE announcements and in a manner consistent with their business prospects; [ii] grew markedly during QE2 and receded during QE3 in relation to the Federal Reserve's Agency MBS purchase activity; and [iii] increased their leverage during QE3. Our findings are consistent with unconventional monetary policy actions crowding out private investment and "reaching for yield" behavior by financial institutions.

Keywords: quantitative easing; risk-taking; REITs; GSEs; mortgages; securitization;

JEL Classification: E58; G21; G23; G28;

https://doi.org/10.29338/wp2018-08

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Bibliographic Information

Provider: Federal Reserve Bank of Atlanta

Part of Series: FRB Atlanta Working Paper

Publication Date: 2018-08-01

Number: 2018-8