Monetary policy in a world with interest on reserves

Charles Carlstrom and Timothy Fuerst

Economic Commentary, 2010, issue Jun

Abstract: Banks have long been required to hold reserves equal to a percentage of their net transactions accounts (checkable deposits, for example), but until recently, they earned no interest on those reserves. The Fed now pays interest on required and excess reserve balances, having been granted the authority by Congress and putting the policy into place ahead of schedule so that it could be used to help address the financial crisis. The policy will be particularly useful when it is time to start tightening policy and unwind the Fed?s balance sheet.

Keywords: Federal funds rate; Bank reserves; Monetary policy (search for similar items in EconPapers)
Date: 2010
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