Working Papers
Beyond Reserves: The Federal Reserve’s Balance Sheet and the Repo Market
with Sriya Anbil (Fed Board), Alyssa Anderson (Uni. of Florida), and Romina Ruprecht (Fed Board)
Revise and Resubmit at The Journal of Finance
Abstract
We present a new constraint on the size of the Fed’s balance sheet: the supply of money held by non-banks. Calibrating a structural model to the recent monetary tightening cycle, we show that this new constraint implies a larger Federal Reserve balance sheet with more short-term liquidity provision than a balance sheet that considers only bank reserve demand. We argue that ignoring the supply of money held by non-banks could lead to loss of interest rate control by the Federal Reserve.Monetary Policy Transmission with Endogenous Reserve Supply
with Kristina Bluwstein (Bank of England), Michael McLeay (Bank of England), and Jacob Stevens (Bank of England)
(Draft available upon request) [Slides]
Abstract
The Bank of England is transitioning from a supply-driven to a demand-driven reserves framework, in which banks borrow most of their reserves through repurchase (repo) agreements. We build a structural model of the UK financial system with rich banks and non-bank linkages to study how this framework shift affects monetary policy transmission. Calibrated to the current quantitative tightening (QT) cycle, the model endogenously produces terminal reserve levels consistent with the Bank’s Preferred Minimum Range of Reserves (PMRR), but suggests that reaching its lower end could generate pressure in secured markets. Conservatively, steady-state reserve balances around £550 billion minimize such pressures. Our quantitative simulations deliver a rule of thumb: each £50 billion reduction in gilt holdings by the central bank raises the secured rate by about 3 basis points and lowers equilibrium reserves by roughly £20 billion.Deregulation and the Geography of Bank Competition
(Draft available upon request)
Abstract
The U.S. banking sector changed substantially following deregulation in the 1990s. The number of commercial banks declined, the largest institutions acquired a much larger share of national activity, and mergers increasingly joined banks operating in distant markets. However, the average local market became no more concentrated and was served by more active banks. Whether this transformation improved welfare remains unclear. I develop and estimate a spatial model of oligopolistic banking in which heterogeneous banks endogenously choose separate deposit and loan footprints, compete locally in prices, and make endogenous merger decisions that combine productive capacities, all while subject to regulatory entry and merger wedges that shape both local and national market structure. I calibrate the model to match key moments of the U.S. banking sector before and after interstate deregulation. The model is able to account for the rise in national concentration and local geographic coverage through the interaction of heterogeneous bank productivity, lower franchise wedges, and mergers between banks with more disparate operating footprints. The calibrated model implies that the deregulation of the 1990s improved consumer welfare, with the majority of the welfare gains due to reductions in the franchise-level cost of entering new markets. An optimal policy counterfactual shows that limited merger regulation alongside modest entry subsidies would have more than doubled the realized gains in consumer welfare.Works in progress
Signaling by Payment: A Theory of Eviction
Discussions
12th Research Workshop of the MPC Taskforce on Banking Analysis for Monetary Policy
When the Spare Tyre Goes Flat: Monetary Policy Transmission through Non-Banks
[Slides]