Beyond Reserves: The Federal Reserve's Balance Sheet and the Repo Market

Sriya Anbil, Alyssa G. Anderson, Ethan Cohen and Romina Ruprecht
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Sriya Anbil: https://www.federalreserve.gov/econres/sriya-l-anbil.htm
Alyssa G. Anderson: https://www.federalreserve.gov/econres/alyssa-g-anderson.htm

No 2026-041, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We present a new constraint on the size of the Fed’s balance sheet: repo market capacity. Calibrating a structural model to the recent monetary tightening cycle, we show that repo market capacity—driven by money market fund liquidity supply—is the binding constraint on the Fed’s balance sheet, not bank reserve demand, which was highlighted in the events of September 2019. We also demonstrate a novel complementarity between interest rate and balance sheet policies: higher policy rates expand repo capacity, allowing the central bank to operate with a smaller balance sheet.

Keywords: monetary policy implementation; quantitative tightening; reserves; overnight reverse repo facility; shadow banks (search for similar items in EconPapers)
Pages: 87 p.
Date: 2026-06-22
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:103441

DOI: 10.17016/FEDS.2026.041

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