Excess reserves during the 1930s: Empirical estimates of the costs of converting unintended cash inventory into income-producing assets

James Lindley (), Clifford Sowell () and Wm. Mounts ()

Journal of Economics and Finance, 2001, vol. 25, issue 2, 135-148

Abstract: It is often argued that the persistent amounts of excess reserves in the 1934–1941 period were sought either for protective liquidity or as a signal of bank safety to depositors. More recent explanations argue that these excess reserves were unintended inventory due to the high internal adjustment costs of converting reserves to income-producing assets. Our findings support the latter explanation and reveal high internal asset adjustment costs after 1933. Thus, a monetary policy focused on increasing reserves would have been ineffective. A successful monetary policy would be one that increased outside money.(JEL G210, G280, O420) Copyright Springer 2001

Date: 2001
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DOI: 10.1007/BF02744518

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