Economics, Econometrics and Finance
4 years ago

Federal Reserve Banks' New Formula Ensures Stable Cost Estimates

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Federal Reserve Bank of New York Economic policy review
Formulating the Imputed Cost of Equity Capital for Priced Services at Federal Reserve Banks
Edward J. Green, Jose A. Lopez, Zhenyu Wang

Paper Summary

The Federal Reserve Banks use a formula to estimate the cost of equity capital for their priced services, as required by a law from 1980. In 2002, they updated this formula to reflect changes in financial practices. The new formula averages costs from three different models and has been found to produce stable and reasonable estimates over a 20-year period.

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