Excess Reserves and the Implementation of Monetary Policy of the ECB
42 Pages Posted: 30 Nov 2004
Date Written: May 2004
This paper explains to what extent excess reserves are and should be relevant today in the implementation of monetary policy, focusing on the specific case of the operational framework of the Eurosystem. In particular, this paper studies the impact that changes to the operational framework for monetary policy implementation have on the level and volatility of excess reserves. A 'transaction costs' model that replicates the rather specific intra-reserve maintenance period pattern of excess reserves in the euro area is developed. Simulation results presented not only show that excess reserves may increase considerably under some changes to the operational framework, but also that their volatility and hence unpredictability could.
Keywords: excess reserves, monetary policy implementation, liquidity management
JEL Classification: E52, E58
Suggested Citation: Suggested Citation