Quantitative Easing and Excess Reserves

GATE WP 1910 – March 2019

48 Pages Posted: 25 Mar 2019

See all articles by Valentin Jouvanceau

Valentin Jouvanceau

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE)

Date Written: March 1, 2019

Abstract

What are the impacts of a flush of interest-bearing excess reserves to the real economy? Surprisingly, the theoretical literature remains silent about this question. We address this issue in a new Keynesian model with various financial frictions and reserve requirements in the balance sheet of bankers. Modeling QE by the supply of excess reserves, allow for endogenous changes in the relative supply of financial assets. We find that this mechanism is crucial to identify and disentangle between the portfolio balance, the credit and the asset prices channels of QE. Further, we demonstrate that the macroeconomic effects of QE are rather weak and mainly transmitted through the asset prices channel.

Keywords: Quantitative Easing, Excess Reserves, Transmission Channels, Securitization Crisis

JEL Classification: E32, E44, E52, E58, G01

Suggested Citation

Jouvanceau, Valentin, Quantitative Easing and Excess Reserves (March 1, 2019). GATE WP 1910 – March 2019, Available at SSRN: https://ssrn.com/abstract=3345002 or http://dx.doi.org/10.2139/ssrn.3345002

Valentin Jouvanceau (Contact Author)

University of Saint Etienne - Analysis Group and Economic Theory Lyon St-Etienne (GATE-LSE) ( email )

Lyon
France

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