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A TRACTABLE MODEL OF THE DEMAND FOR RESERVES UNDER NONLINEAR REMUNERATION SCHEMES

Roc Armenter ()

No 16-35, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We propose a tractable model of the demand for reserves under nonlinear remuneration schemes that can encompass quota systems and voluntary reserve target frameworks, among other possibilities. We show how such remuneration schemes have several favorable properties regarding interest-rate control by the central bank. In particular, wider tolerance bands can reduce rate volatility due to variations in the supply of reserves, both large and small, although they may curtail trading in the interbank market.

Keywords: Bank reserves; monetary policy implementation. (search for similar items in EconPapers)
JEL-codes: E41 E42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2016-12-12
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