Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets

ICER Working Paper Series 1/2014,

24 Pages Posted: 24 Jan 2014 Last revised: 28 Apr 2014

Multiple version iconThere are 2 versions of this paper

Date Written: January 23, 2014

Abstract

The paper sheds light on the link between the interest rate policy in large advanced economies with international funding and reserve currencies (the United States and the Euro Area) and the use of reserve requirements in emerging markets. Using reserve requirement data for 28 emerging markets from 1998 to 2012 we provide evidence that emerging market central banks tend to raise reserve requirements when interest rates in international funding markets decline or financial inflows accelerate to preserve financial stability. In contrast, when global liquidity risk rises and funding from the large advanced economies dries up emerging markets lower reserve requirements to stabilize the banking system that is in need of liquidity.

Keywords: Reserve Requirements, Interest Rates, Emerging Markets

JEL Classification: E52, E58

Suggested Citation

Hoffmann, Andreas and Loeffler, Axel, Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets (January 23, 2014). ICER Working Paper Series 1/2014, . Available at SSRN: https://ssrn.com/abstract=2383808 or http://dx.doi.org/10.2139/ssrn.2383808

Andreas Hoffmann (Contact Author)

Leipzig University ( email )

Institute for Economic Policy
Grimmaische Str. 12
Leipzig, 04109
Germany

HOME PAGE: http://www.a-hoffmann.info

Axel Loeffler

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Straße 14
Frankfurt am Main, 60431
Germany
+49 69 9566 2966 (Phone)

HOME PAGE: http://www.bundesbank.de

Register to save articles to
your library

Register

Paper statistics

Downloads
29
Abstract Views
253
PlumX Metrics