The Macroeconomic Effects of Interest on Reserves

Peter Ireland

No 18409, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses a New Keynesian model with banks and deposits to study the macroeconomic effects of policies that pay interest on reserves. While their effects on output and inflation are small, these policies require major adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish in the short run. In the long run, however, the additional degree of freedom the monetary authority acquires by paying interest on reserves is best described as affecting the real quantity of reserves: policy actions that change prices must still change the nominal quantity of reserves proportionally.

JEL-codes: E31 E32 E51 E52 E58 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Note: ME
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Citations: View citations in EconPapers (16)

Published as Ireland, Peter N., 2014. "The Macroeconomic Effects Of Interest On Reserves," Macroeconomic Dynamics, Cambridge University Press, vol. 18(06), pages 1271-1312, September.

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Related works:
Journal Article: THE MACROECONOMIC EFFECTS OF INTEREST ON RESERVES (2014)
Working Paper: The Macroeconomic Effects on Interest on Reserves (2011)
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