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The Rate of Reserve Requirements and Monetary Policy in Uruguay: a DSGE Approach

German Cubas ()

No 2012011, Documentos de trabajo from Banco Central del Uruguay

Abstract: The goal of this paper is analyze the role of reserve requirements in the transmission of the monetary policy in Uruguay. Motivated by recent changes in the banking reserves rules implemented by the Central Bank a DSGE model that includes this feature is developed to understand its effects in the macroeconomic variables. The model is an extended version of the new keynesian business cycle model developed in Cubas (2011). It includes a banking system and a richly modeled monetary policy with inflation targeting with interventions in the foreign exchange market by the central bank. The model is then calibrated to Uruguay and then used to analyze the reaction of the macroeconomic variables to exogenous shocks to productivity, government expenditures, international interest rate, monetary interventions, risk premium, international inflation and price of exports; under different reserve requirement rules. The model predicts minor changes in the response of the variables of interest for the observed changes in the mean rate of reserve requirements in Uruguay in the period 2005-2011.

Pages: 68 pages
Date: 2012-12
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