Monetary policy implementation with an ample supply of reserves

Gara Afonso, Kyungmin Kim, Antoine Martin, Ed Nosal, Simon Potter and Sam Schulhofer-Wohl
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Kyungmin Kim: https://www.federalreserve.gov/econres/kyungmin-kim.htm

No WP-2020-02, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply likely lies somewhere between scarce and abundant reserves, thus highlighting the benefits of implementation with what could be called “ample” reserves. The Federal Reserve’s announcement in October 2019 that it would maintain a level of reserve supply greater than the one that prevailed in early September is consistent with the implications of our framework.

Keywords: federal funds market; monetary policy implementation; ample reserve supply (search for similar items in EconPapers)
JEL-codes: E42 E58 (search for similar items in EconPapers)
Pages: 47
Date: 2020-01-18
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Monetary Policy Implementation with an Ample Supply of Reserves (2020)
Working Paper: Monetary Policy Implementation with an Ample Supply of Reserves (2020)
Working Paper: Monetary Policy Implementation With an Ample Supply of Reserves (2020)
Working Paper: Monetary Policy Implementation with an Ample Supply of Reserves (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:92784

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DOI: 10.21033/wp-2020-02

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