Substitutability between Balance Sheet Reductions and Policy Rate Hikes: Some Illustrations and a Discussion

Posted: 7 Jun 2022

See all articles by Edmund Crawley

Edmund Crawley

Board of Governors of the Federal Reserve System

Etienne Gagnon

Board of Governors of the Federal Reserve System

James Hebden

Board of Governors of the Federal Reserve System

James Trevino

Board of Governors of the Federal Reserve System

Date Written: June, 2022

Abstract

This note explores the substitutability between policy rate hikes and reductions in the size of the Federal Reserve's balance sheet for the removal of policy accommodation. We do so using a version of the FRB/US model augmented to incorporate the effects of changes in the Federal Reserve's asset holdings on term premiums.

Suggested Citation

Crawley, Edmund and Gagnon, Etienne and Hebden, James and Trevino, James, Substitutability between Balance Sheet Reductions and Policy Rate Hikes: Some Illustrations and a Discussion (June, 2022). FEDS Notes No. 2022-06-03-2, Available at SSRN: https://ssrn.com/abstract=4129667 or http://dx.doi.org/10.17016/2380-7172.3147

Edmund Crawley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Etienne Gagnon

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
2024523522 (Phone)

James Hebden

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

James Trevino

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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