How the Fed Changes the Size of Its Balance Sheet: The Case of Mortgage-Backed Securities
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.
JEL Classification: E5;
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Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2017-07-11