Working Papers
Beyond Reserves: The Federal Reserve’s Balance Sheet and the Repo Market
with Sriya Anbil (Fed), Alyssa Anderson (Fed), and Romina Ruprecht (Fed)
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 (BoE), Michael McLeay (BoE), and Jacob Stevens (BoE)
(Draft available upon request) [Slides]
Abstract
The Bank of England is currently transitioning from a supply-driven to a demand-driven reserves framework, where most reserves will be borrowed by banks through repurchase agreements. We build a structural model of the UK financial system with rich interactions between banks and non-bank financial institutions to study how this framework shift affects conventional and unconventional monetary policy transmission. Calibrated to the current quantitative tightening cycle, the model endogenously produces terminal central bank balance sheet sizes within current estimates of the Preferred Minimum Range of Reserves, 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.Works in progress
Deregulation and the Geography of Bank Competition
Signaling by Payment: A Theory of Eviction
with Graham Lewis (UMN)