November 19, 2020 | Article

Vega experts, Dr. Marco Di Maggio and Dr. Christopher Palmer, recently published a study showing that a quantitative easing program allowed households to spend more during the most recent recession, which may be relevant to the current economic climate following the COVID-19 shutdowns. The study found that when U.S. Federal Reserve purchased massive amounts of mortgage-backed securities (a form of quantitative easing) it drove down mortgage interest rates, allowed consumers to refinance their house loans and spend more on everyday items, and in turn bolstered the economy.

The paper, “How Quantitative Easing Works: Evidence on the Refinancing Channel,” was published in one of the top economic journals, Review of Economic Studies, with their co-author Amir Kermani. 


We document the transmission of large-scale asset purchases by the Federal Reserve to the real economy using rich borrower-linked mortgage-market data and an identification strategy based on mortgage market segmentation. We find that central bank QE1 MBS purchases substantially increased refinancing activity, reduced interest payments for refinancing households, led to a boom in equity extraction, and increased aggregate consumption. Relative to QE-ineligible jumbo mortgages, QE-eligible conforming mortgage interest rates fell by an additional 40 bp and refinancing volumes increased by an additional 56% during QE1. We estimate that households refinancing during QE1 increased their durable consumption by 12%. Our results highlight that the transmission of unconventional monetary policy to the real economy depends crucially on the composition of assets purchased and the degree of segmentation in the market.

The views expressed in this article are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Vega Economics. For more information about Professor Di Maggio or Professor Palmer, please email


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