Interest on reserves, regime shifts, and bank behavior

Donald Dutkowsky () and David VanHoose

Journal of Economics and Business, 2017, vol. 91, issue C, 15 pages

Abstract: This paper demonstrates that in the post-2008 environment with interest on reserves, monetary policy actions can generate regime shifts that yield quantitatively and even qualitatively different responses of bank balance-sheet configurations and loan and deposit market outcomes to exogenous changes. In contrast to the view that a one-time structural change occurred in 2008, switching between several different regimes plausibly can arise depending upon settings of the reserve ratio, federal funds rate, and the interest rate on reserves. Our results explain stylized facts regarding excess reserves and interbank lending. Analysis with calibrated values indicates that such regime switching has occurred.

Keywords: Interest on reserves; Federal funds rate; Bank lending; Monetary policy (search for similar items in EconPapers)
JEL-codes: E58 G21 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:91:y:2017:i:c:p:1-15

DOI: 10.1016/j.jeconbus.2017.03.003

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