Substitutability between Balance Sheet Reductions and Policy Rate Hikes: Some Illustrations and a Discussion
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.
Part of Series: FEDS Notes
Publication Date: 2022-06-03