Implementation of Monetary Policy in a Regime with Zero Reserve Requirements

Bank of Canada Working Paper 97-8

25 Pages Posted: 5 Feb 1998

See all articles by Kevin Clinton

Kevin Clinton

Government of Canada - Bank of Canada

Date Written: April 1997

Abstract

Monetary policy can be implemented effectively without reserve requirements as long as cost incentives ensure a predictable demand for settlement balances. A central bank can then achieve the level of short-term interest rates that it desires, using market-oriented instruments only. In Canada, the framework provided by rules on interbank payments settlement and by the costs of deficits and surpluses on settlement accounts provides a strong incentive for the banks and other clearing institutions to target zero balances. Reforms of this framework, to follow the introduction of the Large-Value Transfer System, will ensure its continued effectiveness and make it more transparent. An appendix outlines the process by which reserve requirements were phased out in Canada.

JEL Classification: E42, E52, E58

Suggested Citation

Clinton, Kevin, Implementation of Monetary Policy in a Regime with Zero Reserve Requirements (April 1997). Bank of Canada Working Paper 97-8, Available at SSRN: https://ssrn.com/abstract=56143 or http://dx.doi.org/10.2139/ssrn.56143

Kevin Clinton (Contact Author)

Government of Canada - Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada
613-782-8766 (Phone)
613-782 7508 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
251
Abstract Views
1,349
rank
135,388
PlumX Metrics