Abstract
Using micro-level data of Mortgage-Backed Securities (MBS) deals – a different empirical approach than those employed in the existing literature, this paper examines quantitatively how unconventional monetary policy affect MBS spreads and thus augments the still very limited literature on the link between unconventional monetary policy and mortgage markets. This paper also provides the first comparative study including both the U.S. and Japan in order to offer a broader perspective on this issue. We find that unconventional monetary policies implemented by the U.S. Federal Reserve and the Bank of Japan both have statistically significant effects in lowering MBS spreads. Furthermore, our evidence suggests that in the U.S., the Federal Reserve’s market-based approach to unconventional monetary policy of providing direct financial support to the MBS market is effective in reducing MBS spreads, while in Japan, it is the Bank of Japan’s bank-based approach to unconventional monetary policy of providing direct financial support to commercial banks that is effective in reducing MBS spreads.
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