IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2012-56.html
   My bibliography  Save this paper

The Federal Reserve's balance sheet: a primer and projections

Author

Listed:

Abstract

Over the past few years, the Federal Reserve's use of unconventional monetary policy tools has led it to hold a large portfolio of securities. The securities holdings in excess of historical norms have been shown to be putting downward pressure on longer-term interest rates. One question asked is how long this unusual amount of monetary policy accommodation will be in place. Here we provide projections of the evolution of the Federal Reserve's balance sheet that are consistent with public economic forecasts and announced Federal Open Market Committee policy principles to help answer this question. We begin with a primer on the Federal Reserve's balance sheet. Then, with the foundational concepts in place, we present a framework for projecting Federal Reserve assets and liabilities through time. In the projections, the Federal Reserve's balance sheet remains large by historical standards for several years. Our baseline projection suggests that market participants likely do not expect the Federal Reserve's portfolio to return to a more normal size until August 2017, and its composition to return to normal until September 2018. Overall, this suggests that market participants believe that unconventional monetary policy will be in place for some time, likely depressing longer-term interest rates for a number of years.

Suggested Citation

  • Alexander H. Boote & Seth B. Carpenter & Jane E. Ihrig & Elizabeth C. Klee & Daniel W. Quinn, 2012. "The Federal Reserve's balance sheet: a primer and projections," Finance and Economics Discussion Series 2012-56, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2012-56
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/2012/201256/201256abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/2012/201256/201256pap.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adrien Alvero & Andreas M. Fischer, 2016. "Exchange rate floor and central bank balance sheets: Simple spillover tests of the Swiss franc," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(02), pages 31-50, August.
    2. Marquez, Jaime & Morse, Ari & Schlusche, Bernd, 2013. "The Federal Reserve’s balance sheet and overnight interest rates: Empirical modeling of exit strategies," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5300-5315.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2012-56. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.