Document Type
Article
Publication Date
2-2024
Keywords
Financial Reporting, Macroeconomic Forecasting, Federal Reserve, Monetary Policy
Abstract
This study investigates whether the U.S. Federal Reserve’s balance sheet can be used to predict macroeconomic outcomes. The Federal Reserve writes its own accounting standards, and I recast portions of the Federal Reserve’s weekly balance sheet as if it more closely followed Generally Accepted Accounting Principles. Specifically, I estimate the fair value of the Federal Reserve’s U.S. Treasury notes and bonds and calculate the associated unrealized gains and losses. I demonstrate that unrealized gains (losses) on the Federal Reserve’s U.S. Treasury notes and bonds are associated with lower (higher) one-quarter ahead inflation and real gross domestic product growth. Additionally, I show that modifying proxies for macroeconomic news to incorporate the predictive value of unrealized gains and losses on the Federal Reserve’s U.S. Treasury notes and bonds helps explain equity returns around the release of macroeconomic data.
Citation
Crawley, M. J. (2024). Using The Federal Reserve’s Balance Sheet to Predict Macroeconomic Outcomes. International Journal of Business & Management Studies, 5 (2), 45-63. https://doi.org/https://doi.org/10.56734/ijbms.v5n2a7
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
