A probability-based stress test of Federal Reserve assets and income

Jens H.E. Christensen, Jose Lopez and Glenn Rudebusch

Journal of Monetary Economics, 2015, vol. 73, issue C, 26-43

Abstract: To support the economic recovery, the Federal Reserve amassed a large portfolio of long-term bonds. We assess the Fed׳s associated interest rate risk—including potential losses to its Treasury and mortgage-backed securities holdings and declines in the Fed׳s remittances to the Treasury. In assessing this interest rate risk, we use probabilities of alternative interest rate scenarios that are obtained from a dynamic term structure model that respects the zero lower bound on yields. The resulting probability-based stress tests indicate that large portfolio losses or a cessation of remittances to the Treasury are unlikely to occur over the next few years.

Keywords: Term structure modeling; Zero lower bound; Monetary policy; Quantitative easing (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (39)

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Related works:
Working Paper: A Probability-Based Stress Test of Federal Reserve Assets and Income (2013)
Working Paper: A Probability-Based Stress Test of Federal Reserve Assets and Income (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:73:y:2015:i:c:p:26-43

DOI: 10.1016/j.jmoneco.2015.03.007

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