The Optimal Supply of Central Bank Reserves under Uncertainty

Gara Afonso, Gabriele La Spada, Thomas Mertens and John Williams

No 2023-34, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper provides an analytically tractable theoretical framework to study the optimal supply of central bank reserves when the demand for reserves is uncertain and nonlinear. We fully characterize the optimal supply of central bank reserves and associated market equilibrium. We find that the optimal supply of reserves under uncertainty is greater than that absent uncertainty. With a sufficient degree of uncertainty, it is optimal to supply a level of reserves that is abundant (on the flat portion of the demand curve) absent shocks. The optimal mean spread between the market interest rate and administered rates under uncertainty may be higher or lower than that absent uncertainty. Our model is consistent with the observation that the variability of interest rate spreads is a function of the level of reserves.

Keywords: central bank reserves; uncertainty (search for similar items in EconPapers)
Pages: 34
Date: 2023-11-09
New Economics Papers: this item is included in nep-ban and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.frbsf.org/wp-content/uploads/wp2023-34.pdf Full Text (text/html)

Related works:
Working Paper: The Optimal Supply of Central Bank Reserves under Uncertainty (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:97340

Ordering information: This working paper can be ordered from

DOI: 10.24148/wp2023-34

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().