Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity

Gara Afonso, Domenico Giannone, Gabriele La Spada and John Williams

No 20241017, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: As central banks shrink their balance sheets to restore price stability and phase out expansionary programs, gauging the ampleness of reserves has become a central topic to policymakers and academics alike. The reason is that the ampleness of reserves informs when to slow and then stop quantitative tightening (QT). The Federal Reserve, for example, implements monetary policy in a regime of ample reserves, whereby the quantity of reserves in the banking system needs to be large enough such that everyday changes in reserves do not cause large variations in short-term rates. The goal is therefore to implement QT while ensuring that reserves remain sufficiently ample. In this post, we review how to gauge the ampleness of reserves using the new Reserve Demand Elasticity (RDE) measure, which will be published monthly on the public website of the Federal Reserve Bank of New York as a standalone product.

Keywords: ample reserves; monetary policy; implementation (search for similar items in EconPapers)
JEL-codes: E41 E52 (search for similar items in EconPapers)
Date: 2024-10-17
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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