Working Paper

A Short-Term Model of the Fed's Portfolio Choice

Dean Croushore

Professor of Economics and Rigsby Fellow, University of Richmond and Visiting Scholar, Federal Reserve Bank of Philadelphia

Revised: April 2003

WP 03-08 – What would happen if the Federal Reserve were to change the assets in its portfolio?

Suppose that instead of using open-market operations in Treasury securities to increase the monetary base, the Fed were to engage in open-market operations in private securities or to use discount loans via a mechanism that allowed banks to borrow as much as they would like at a fixed discount rate. The analysis in this paper shows the impact on the economy in a static general-equilibrium model.

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