Reserve Demand Estimation with Minimal Theory

Ricardo Lagos and Gaston Navarro

No 26-07, Working Paper from Federal Reserve Bank of Richmond

Abstract: We propose a new reserve-demand estimation strategy—a middle ground between atheoretical reduced-form econometric approaches and fully structural quantitative-theoretic approaches. The strategy consists of an econometric specification that satisfies core restrictions implied by theory and controls for changes in administered-rate spreads that induce rotations and shifts in reserve demand. The resulting approach is as user-friendly as existing reduced-form econometric methods but improves upon them by incorporating a minimal set of theoretical restrictions that any reserve demand must satisfy. We apply this approach to U.S. data and obtain reserve-demand estimates that are broadly consistent with the structural estimates in Lagos and Navarro (2023).

Keywords: econometrics; monetary policy; minimal reserve demand (search for similar items in EconPapers)
Pages: 28
Date: 2026-03-30
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Working Paper: Reserve Demand Estimation with Minimal Theory (2026)
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DOI: 10.21144/wp26-07

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