What Quantity of Reserves Is Sufficient?

Adam Copeland, Darrell Duffie and Yilin Yang ()
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Yilin Yang: https://www.gsb.stanford.edu/programs/phd/academic-experience/students/david-yilin-yang

No 20210929, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: A concern of the Federal Reserve is how to manage its balance sheet and whether, over the long run, the balance sheet should be small or large. In this post, we highlight results from a recent paper in which we show how, even during a period of “ample” reserves, the Fed’s management of its balance sheet had material impacts on funding markets and especially the repo market. We argue that the Fed’s “balance-sheet normalization” from March 2017 to September 2019—under which aggregate reserves declined by more than $950 billion—combined with post-crisis liquidity regulations, stressed the intraday management of reserves of large bank holding companies that are active in wholesale funding markets resulting in higher repo rates and spikes in such.

Keywords: repo rates; reserves; Treasuries; Treasurys; payments; central bank balance sheets (search for similar items in EconPapers)
JEL-codes: E58 G1 (search for similar items in EconPapers)
Date: 2021-09-29
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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