Reserve requirements as an instrument of monetary policy

Petr Mach ()
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Petr Mach: The University of Finance and Administration

No 15817033, Proceedings of Economics and Finance Conferences from International Institute of Social and Economic Sciences

Abstract: Reserve requirements belong to the portfolio of instruments of many central banks. Although many central banks do not use reserve requirements actively as an instrument of monetary policy, the changes in the reserve requirements affect the volume of deposits, of the money stock and thus of the price level. In this contribution, the effective deposit multiplier that takes into account both the optimal reserve ratio of commercial banks as well as the minimum reserve requirements is formulated and the iteration process is illustrated in which the volume of deposits converges to an equilibrium. It can be argued that once minimum reserves exist, they can be used as an efficient instrument of monetary policy by its gradual decrease leading to a smooth desirable increase in the money stock aimed at maintaining price stability.

Keywords: Reserve; requirements.; Deposit; multiplier.; The; money; stock.; Monetary; policy. (search for similar items in EconPapers)
JEL-codes: E50 E51 E59 (search for similar items in EconPapers)
Pages: 1 page
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Published in Proceedings of the Proceedings of the International Conference on Economics, Finance & Business, Berlin, Nov -0001, pages 45-45

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iefpro:15817033

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