Did the Fed Buying MBS Make a Difference?
The ultimate objective of the FED MBS purchase program was, in the words of the Fed, to reduce mortgage rates “relative to what they otherwise would have been.” Did the Fed meet this objective? According to a new study by Stanford University Economists Johannes Stroebel and John Taylor the Fed did not. More specificially, the professors “find that the MBS program has no significant effect. Movements in prepayment risk and default risk explain virtually all of the movements in mortgage spreads.”