The Demand for Bank Reserves and Other Monetary Aggregates
Central European University Economics Working Paper No. WP8/2003
37 Pages Posted: 9 Jan 2004
Date Written: August, 13, 2003
The paper starts with Haslag's (1998) model of the bank's demand for reserves and reformulates it with a cash-in-advance approach for both financial intermediary and consumer. This gives a demand for a base of cash plus reserves that is not sensitive to who gets the inflation tax transfer. It extends the model to formulate a demand for demand deposits, yielding an M1-type demand, and then includes exchange credit, yielding an M2-type demand. Based on the comparative statics of the model it provides an interpretation of the evidence on monetary aggregates. This explanation relies on the nominal interest as well as technology factors of the banking sector.
Keywords: Bank reserves, money demand, aggregates
JEL Classification: E31, E13, O42
Suggested Citation: Suggested Citation