Accounting and the potency of open market operations

Brian Jacobsen

Applied Economics Letters, 2007, vol. 14, issue 2, 83-86

Abstract: Through a mathematical programming setup, reserve accounting is shown to be auxiliary to accomplishing monetary policy operating objectives. This article outlines a theoretical way of comparing the potency of open market operations under different reserve accounting procedures. It is shown that if the interest sensitivity of reservable liabilities is greater than the interest sensitivity of reserves, then lagged reserve accounting makes Federal Reserve open market purchases and 'sells' of securities more powerful in affecting the federal funds rate.

Date: 2007
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DOI: 10.1080/13504850500425980

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