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How the Fed Changes the Size of Its Balance Sheet: The Case of Mortgage-Backed Securities

Author

Listed:
  • Deborah Leonard
  • Antoine Martin
  • Simon M. Potter
  • Brett Rose

Abstract

In our previous post, we considered balance sheet mechanics related to the Federal Reserve's purchase and redemption of Treasury securities. These mechanics are fairly straightforward and help to illustrate the basic relationships among actors in the financial system. Here, we turn to transactions involving agency mortgage-backed securities (MBS), which are somewhat more complicated. We focus particularly on what happens when households pay down their mortgages, either through regular monthly amortizations or a large payment covering some or all of the outstanding balance, as might occur with a refinancing.

Suggested Citation

  • Deborah Leonard & Antoine Martin & Simon M. Potter & Brett Rose, 2017. "How the Fed Changes the Size of Its Balance Sheet: The Case of Mortgage-Backed Securities," Liberty Street Economics 20170711, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87203
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    Citations

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    Cited by:

    1. Emily Greenwald & Sam Schulhofer-Wohl & Josh Younger, 2023. "Deposit Convexity, Monetary Policy and Financial Stability," Working Papers 2315, Federal Reserve Bank of Dallas.
    2. Jane E. Ihrig & Lawrence Mize & Gretchen C. Weinbach, 2017. "How Does the Fed Adjust its Securities Holdings and Who is Affected?," Finance and Economics Discussion Series 2017-099, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    MBS; Balance sheet; mortgage-backed securities; reinvestments;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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