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The Park Place Economist

Abstract

I want to focus on the Federal Reserve in relation to the past two business cycles our economy has gone through (since March of 2001). My research question pertains to the composition of holdings of the Federal Reserve between recessions and expansions, and I will also examine the size of these holdings relative to GDP. The main research question I want to ask from my project is: Has the Fed fundamentally changed from the recession we faced in 2001 until now? When I talk about a fundamental change, I am trying to see whether or not the composition of the Fed’s balance sheet (assets) has changed since 2001. If their mandates and objectives are still the same, then I believe I should see a statistically similar spread of holdings for the Fed during the same economic conditions. I expect there to be more change in the balance sheet when comparing trough to trough due to the different measures used to combat the recessions in 2001 and 2008, Horwitz The Park Place Economist, Volume XXV 107 respectively. I expect much less change in the composition of the balance sheet when comparing peak to peak because as things return back to normal in the economy, I think the Fed’s assets would as well.

Although I will not run a statistical test on the Fed’s balance sheet relative to U.S. GDP, I will use descriptive statistics to show changes that have occurred in the past fifteen years. This can be a useful tool that will complement my test on the composition of the Fed’s balance sheet because I can observe what changes were made, and how large those changes were.

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