Reserve Demand Estimation: A Proposal

Ricardo Lagos and Gaston Navarro

Richmond Fed Economic Brief, 2026, vol. 26, issue 13

Abstract: Monetary policy implementation can be framed in terms of the demand for reserves: the relationship between the quantity of reserves held at the Fed and the average rate at which banks trade in interbank markets. We propose a new econometric strategy to estimate the demand for reserves, which incorporates core restriction derived from theory models yet remains flexible and easy to implement. We compare our estimates of the demand for reserves with other available approaches.

Date: 2026
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