Efficiency of Reserve Requirements as a Monetary Policy Instrument

Mirjana Palic and Nikola Tasic
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Mirjana Palic: National Bank of Serbia
Nikola Tasic: National Bank of Serbia

Working papers from National Bank of Serbia

Abstract: This paper investigates macroeconomic implications of using reserve requirements as a monetary policy instrument. The result suggests that reserve requirement has not been an efficient instrument. We derive this broad conclusion as this instrument does not have expected effect on the credit activity of commercial banks. Furthermore, reserve requirements increases private foreign debt, while the impact on the foreign liabilities is not statistically significant. In contrast to reserve requirements, 2-weeks repo rate of NBS decreases private foreign debt, and this impact is statistically significant. Core and headline inflations are determined by the exchange rate movements, while the direct effect of reserve requirements and NBS interest rate is not confirmed.

Keywords: reserve requirements; credit; foreign debt; inflation (search for similar items in EconPapers)
JEL-codes: E31 E58 F34 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2008-03
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Persistent link: https://EconPapers.repec.org/RePEc:nsb:wppnbs:11

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