Conservatorship, quantitative easing, and mortgage spreads: a new multi-equation score-driven model of policy actions

In this paper, the effects of United States (US) policy actions on mortgage-backed security and mortgage loan spreads are measured, by using data before, during, and after the US subprime mortgage crisis. We study the effects of the following policy actions: (i) the placement of Fannie Mae and Freddie Mac into US Government conservatorship; (ii) the US Federal Reserve quantitative easing (QE) programs. We provide the following contributions to the literature: (i) for a robust measurement of policy effects, a new multi-equation score-driven t-QVARMA (quasi-vector autoregressive moving average) model is used. (ii) In addition to the measurement of the effects of QE, the effects of government conservatorship are also measured in this paper. (iii) Furthermore, the data period of the relevant literature is extended to the period of June 1998 to March 2020.