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A Tractable Model of the Demand for Reserves Under Nonlinear Remuneration Schemes

27 Pages Posted: 16 Dec 2016  

Roc Armenter

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Date Written: 2016-12-12

Abstract

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.

Keywords: Bank reserves, monetary policy implementation.

JEL Classification: E41, E42

Suggested Citation

Armenter, Roc, A Tractable Model of the Demand for Reserves Under Nonlinear Remuneration Schemes (2016-12-12). FRB of Philadelphia Working Paper No. 16-35. Available at SSRN: https://ssrn.com/abstract=2886310

Roc Armenter (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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