Quantitative Easing Transmission to Mortgage Market During COVID-19: Evidence from the Conforming Loan Segment Público

Abstract

This paper examines the effectiveness of the Federal Reserve's unprecedented large-scale asset purchases (LSAP) program, or quantitative easing (QE), during the COVID-19 pandemic through the mortgage refinancing channel. Exploiting the institutional feature that the Fed can only purchase agency mortgage-backed securities backed by conforming loans, I employ a difference-in-differences approach to identify the effect of QE on mortgage market outcomes. Using Home Mortgage Disclosure Act (HMDA) data from 2017-2023, I find that the Fed's COVID-era asset purchases led to a 32-42 basis point larger reduction in interest rates for conforming loans relative to nonconforming loans. This differential effect translates into substantially higher refinancing activity, with conforming loan origination volumes increasing by 63-68 log points (approximately 88-97%) more than nonconforming loans during the QE period. Event study analysis indicates these effects materialized rapidly in 2020, then tapered off as the Federal Reserve scaled down and eventually stopped its asset purchases. The results remain robust to extensive loan-level controls and to exclusion of loans near the conforming loan limit threshold. Furthermore, metropolitan areas experiencing net in-migration showed somewhat stronger policy transmission, illustrating how demographic shifts can amplify QE’s impact on local housing markets. This study contributes to our understanding of unconventional monetary policy transmission during exogenous economic crises and provides insights into the distributional consequences of central bank interventions across mortgage market segments.

Table of Contents

1 Introduction

2 Related Literature

2.1 Conventional Monetary Policy and Refinancing Channel

2.2 Unconventional Monetary Policy Transmission

2.3 Regional Heterogeneity and Distributional Effects

2.4 COVID-19 Era QE and Migration Patterns

3 Data

4 Empirical Strategy

4.1 Difference-in-Differences

4.2 Two-Way Fixed Effects

4.3 Dynamic Two-Way Fixed Effects (Event Studies)

4.4 Robustness Check

5 Results

5.1 Difference-in-Differences

5.2 Two-Way Fixed Effects (TWFE)

5.3 Dynamic Two-Way Fixed Effects (Event Studies)

5.4 Robustness Check

6 Discussion: COVID-19 Migration-Induced Heterogeneity

7 Conclusion

8 Bibliography

Appendix A. List of Covariates

Appendix B. Parallel Trends Sensitivity Test

Appendix C. Loan Origination Trends with Net Migration

About this Honors Thesis

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School	Emory College
Department	Economics
Degree	B.A.
Submission	Honors Thesis
Language	English
Research Field	Economics, General Economics, Finance
Palavra-chave	Mortgage Refinancing COVID-19 Quantitative Easing Monetary Policy Transmission Agency MBS
Committee Chair / Thesis Advisor	Esfandiar Maasoumi, Emory University
Committee Members	Christopher Hansman, Emory University Nosayba El-Sayed, Emory University

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