How Do the Fed's MBS Purchases Affect Credit Allocation?

Antoine Martin and Sam Schulhofer-Wohl

No 20180806, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: It is sometimes said that the Federal Reserve should not engage in “credit allocation.” But what does credit allocation actually mean? And how do current Fed policies affect the allocation of credit? In this post, we describe two separate ideas often associated with credit allocation. The first idea is that the Fed should not take credit risk, which taxpayers would ultimately have to bear. The second idea is that the Fed’s actions should not influence the flow of credit to particular sectors. We consider whether the Fed’s holdings of agency mortgage-backed securities (MBS) could affect the allocation of credit. In a companion post, we discuss how the economic effects of the Fed’s MBS holdings compare with the economic effects of more traditional holdings.

Keywords: credit allocation; MBS; asset purchases (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Date: 2018-08-06
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:87267

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