How Abundant Are Reserves? Evidence from the Wholesale Payment System

26 Pages Posted: 29 Nov 2022

See all articles by Gara Afonso

Gara Afonso

Federal Reserve Bank of New York

Darrell Duffie

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Canadian Derivatives Institute

Lorenzo Rigon

Stanford University - Department of Economics

Hyun Song Shin

Bank for International Settlements (BIS)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2022

Abstract

Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments. By providing a window on liquidity constraints revealed by payment behavior, our results shed light on thresholds for the adequacy of reserve balances. Our findings are timely, given the ongoing shrinking of central bank balance sheets around the world in response to inflation.

Keywords: real-time gross settlement (RTGS) systems, quantitative tightening, balance sheet management, reserve balances

JEL Classification: E42, E44, E52, E58, G21

Suggested Citation

Afonso, Gara and Duffie, James Darrell and Rigon, Lorenzo and Shin, Hyun Song, How Abundant Are Reserves? Evidence from the Wholesale Payment System (November 2022). FRB of New York Staff Report No. 1040, Available at SSRN: https://ssrn.com/abstract=4282909 or http://dx.doi.org/10.2139/ssrn.4282909

Gara Afonso (Contact Author)

Federal Reserve Bank of New York ( email )

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HOME PAGE: http://nyfedeconomists.org/afonso

James Darrell Duffie

Stanford University - Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Canadian Derivatives Institute ( email )

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Lorenzo Rigon

Stanford University - Department of Economics ( email )

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STANFORD, CA 94305-6072
United States

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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