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Federal Reserve Bank of New York
Staff Reports
Fiscal implications of the Federal Reserve's balance sheet normalization
Michele Cavallo
Marco Del Negro
W. Scott Frame
Jamie Grasing
Benjamin A. Malin
Carlo Rosa
Abstract

The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 percent to under 5 percent. Further reducing longer-run reserve balances from $1 trillion to precrisis levels has little effect on the likelihood of net losses.


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Michele Cavallo & Marco Del Negro & W. Scott Frame & Jamie Grasing & Benjamin A. Malin & Carlo Rosa, Fiscal implications of the Federal Reserve's balance sheet normalization, Federal Reserve Bank of New York, Staff Reports 833, 01 Jan 2018.
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Keywords: central bank balance sheets; monetary policy; remittances
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