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How Do the Fed's MBS Holdings Affect the Economy?

Author

Listed:
  • Antoine Martin
  • Sam Schulhofer-Wohl

Abstract

In our previous post, we discussed the meaning of the term “credit allocation” and how it relates to the Federal Reserve’s holdings of agency mortgage-backed securities (MBS). We concluded that the Fed’s MBS holdings do not pose significant credit risk but that the Fed does influence the relative market price of credit when it purchases agency MBS, and this indirectly influences decisions by investors. Today, we take the next step and discuss how the Fed’s MBS purchases affect the U.S. economy and, in particular, how the effect of MBS purchases can differ from the effect of purchases of Treasury securities.

Suggested Citation

  • Antoine Martin & Sam Schulhofer-Wohl, 2018. "How Do the Fed's MBS Holdings Affect the Economy?," Liberty Street Economics 20180808, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87268
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    More about this item

    Keywords

    Federal Reserve; MBS; economy;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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