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The effect of interest on reserves on monetary policy

Renee Courtois and John Walter ()

Richmond Fed Economic Brief, 2009, issue Dec, No 09-12

Abstract: In October 2008 the Federal Reserve began paying banks interest on the reserves they hold. This action was intended to remove the implicit, distortionary tax that reserve requirements impose on banks, as well as help the Fed maintain the fed funds rate at its target. Going forward, interest on reserves is likely to simplify monetary policy implementation, as well as allow the Fed to pursue separate monetary and credit policies.

Keywords: Inflation (Finance); Monetary policy (search for similar items in EconPapers)
Date: 2009
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Handle: RePEc:fip:fedreb:y:2009:i:dec:n:09-12