The Promises and Pitfalls of Contemporaneous Reserve Requirements for the Implementation of Monetary Policy

10 Pages Posted: 24 Aug 2012

See all articles by Marvin Goodfriend

Marvin Goodfriend

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: 1984

Abstract

In October 1979, the Fed acknowledged the potential value of reserve targeting for controlling the money stock and stabilizing the price level. It soon became apparent that the benefits of reserve targeting could not be realized with the lagged reserve requirement rules then in place. Consequently, in June 1982 the Federal Reserve Board decided to move to contemporaneous reserve requirements (CRR). Announcing its intention to change to CRR, the Board said simply that it expected CRR "to improve the implementation of monetary policy to a degree by strengthening the linkage between reserves held by depository institutions and the money supply." This is essentially all the Board has said about the value of CRR for making policy. The benefits of CRR can be more elusive than this statement suggests and more significant as well. This article is intended to point out the promises and pitfalls of CRR for the implementation of monetary policy.

Suggested Citation

Goodfriend, Marvin, The Promises and Pitfalls of Contemporaneous Reserve Requirements for the Implementation of Monetary Policy (1984). FRB Richmond Economic Review, Vol. 70, No. 3, May/June 1984, pp. 3-12. Available at SSRN: https://ssrn.com/abstract=2120055

Marvin Goodfriend (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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