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The Treasury’s Account at the Fed: Fiscal and Monetary Interactions

by Zachary Corriea


The Treasury's Account at the Fed
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Abstract: While there is great interest in the interaction between Treasury debt issuance and interest rates, there is surprisingly little interest in the mechanism by which this occurs. One possible mechanism for this interaction is the reserve market. Using vector autoregression, this paper develops a novel model of reserve supply that incorporates TGA fluctuations to determine whether changes in the TGA produce changes in the federal funds rate. This paper finds that the Federal Reserve sterilizes TGA-induced changes in the federal funds rate, keeping deviations within 50 basis points following a shock to the TGA.

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