The effects of mortgage prepayments on M2
Divisions of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2005 - Business & Economics - 45 pages
Mortgage prepayments can contribute significantly to fluctuations in M2 growth rates. These mortgage prepayment effects are primarily driven by certain rules of mortgage-backed-security (MBS) insurers that require mortgage servicers to hold in M2-type deposits the prepayment proceeds due to MBS investors. This paper provides a methodology for estimating prepayment effects on M2. The effects are estimated separately for refinancing and home sales. The results indicate that excluding the mortgage prepayment effects from M2 produces smoother monthly growth rates. The stability of the relationship between money and GDP as measured by M2 velocity is also increased. Refinancing prepayments account for most of the prepayment effects on M2.
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actual M2 Adam Copeland adjusted M2 Andrew Cohen April August Bank Brian Sack business day cash out ratios coefﬁcients column coupon rate gaps December demand deposits distributions of prepayments Economics Discussion Series effects of mortgage effects on M2 Egon Zakrajsek Equation estimated February Federal Reserve Board FHLMC ﬁom ﬁrst ﬁrst-month ﬂoat period FNMA FNMA-insured MBSs free cash GNMA HMDA data home mortgages home purchases home sales home sellers Inﬂation institutional rules Interest Rates January July June Kevin Moore lenders M2 accounts M2 adjusted M2 growth rates Market MBS holders MBS insurers MBS pools Model Monetary Policy monthly gross cash mortgage prepayment effects mortgage rates mortgage reﬁnancing mortgage servicers Nancy Wallace November O’Brien Occtber origination dates outstanding balances percent Portfolio prepayment proceeds prepayments on M2 prepayments received Quarter reﬁnancing and home reﬁnancing mortgage reﬁnancing originations reﬁnancing prepayment effects reporting bias securitized signiﬁcant sold-loan shares Takeshi Kimura total prepayment effects