A Tractable Model of the Demand for Reserves Under Nonlinear Remuneration Schemes
Federal Reserve Banks - Federal Reserve Bank of Philadelphia
FRB of Philadelphia Working Paper No. 16-35
We propose a tractable model of the demand for reserves under nonlinear remuneration schemes that can encompass quota systems and voluntary reserve target frameworks, among other possibilities. We show how such remuneration schemes have several favorable properties regarding interest-rate control by the central bank. In particular, wider tolerance bands can reduce rate volatility due to variations in the supply of reserves, both large and small, although they may curtail trading in the interbank market.
Number of Pages in PDF File: 27
Keywords: Bank reserves, monetary policy implementation.
JEL Classification: E41, E42
Date posted: December 16, 2016