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Fiscal Implications of the Federal Reserve's Balance Sheet Normalization

Michele Cavallo, Marco Del Negro (), W Frame (), Jamie Grasing, Benjamin Malin () and Carlo Rosa
Additional contact information
Michele Cavallo: Federal Reserve Board
Jamie Grasing: University of Maryland
Carlo Rosa: Federal Reserve Bank of New York

No 747, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 percent to under 5 percent. Further reducing longer-run reserve balances from $1 trillion to pre-crisis levels has little effect on the likelihood of net losses.

Keywords: Central bank balance sheets; Monetary policy; Remittances (search for similar items in EconPapers)
JEL-codes: E58 E59 E69 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2018-01-05
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Related works:
Working Paper: Fiscal Implications of the Federal Reserve's Balance Sheet Normalization (2018) Downloads
Working Paper: Fiscal Implications of the Federal Reserve's Balance Sheet Normalization (2018) Downloads
Working Paper: Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization (2018) Downloads
Working Paper: Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization (2018) Downloads
Working Paper: Fiscal implications of the Federal Reserve's balance sheet normalization (2018) Downloads
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DOI: 10.21034/wp.747

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