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Big bank, small bank: Monetary policy implementation and banks' reserve management strategies

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  • Judson, Ruth A.
  • Klee, Elizabeth
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    Abstract

    Abstract This paper provides estimates of banks' demand for excess reserve balances on a period average basis for the period from 2005 to mid-2008. Consistent with theoretical work, we find that the demand for excess depends critically on uncertainty of flows in and out of reserve accounts. We also document the variability of demand for excess reserve balances by institution size, evaluate different models for forecasting demand for excess on a period average basis, and report the forecasting performance of each of these models.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0148619511000142
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 63 (2011)
    Issue (Month): 4 (July)
    Pages: 306-328

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    Handle: RePEc:eee:jebusi:v:63:y:2011:i:4:p:306-328

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    Web page: http://www.elsevier.com/locate/jeconbus

    Related research

    Keywords: Monetary policy implementation Federal funds market Demand for reserves;

    References

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    1. Seth Carpenter & Selva Demiralp, 2004. "The liquidity effect in the federal funds market: evidence from daily open market operations," Finance and Economics Discussion Series 2004-61, Board of Governors of the Federal Reserve System (U.S.).
    2. Giuseppe Bertola & Leonardo Bartolini & Alessandro Prati, 2000. "Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention," IMF Working Papers 00/163, International Monetary Fund.
    3. James P. Dow Jr., 2001. "The Demand for Excess Reserves," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 685-700, January.
    4. Huberto M. Ennis & Todd Keister, 2008. "Understanding monetary policy implementation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 235-263.
    5. Griffiths, Mark D. & Winters, Drew B., 1995. "Day-of-the-week effects in federal funds rates: Further empirical findings," Journal of Banking & Finance, Elsevier, vol. 19(7), pages 1265-1284, October.
    6. Judson, Ruth A. & Klee, Elizabeth, 2010. "Whither the liquidity effect: The impact of Federal Reserve open market operations in recent years," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 713-731, September.
    7. James D. Hamilton, 1996. "Measuring the liquidity effect," Working Papers in Applied Economic Theory 96-06, Federal Reserve Bank of San Francisco.
    8. Clouse, James A. & Dow Jr., James P., 1999. "Fixed costs and the behavior of the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1015-1029, July.
    9. Hamilton, James D., 1998. "The supply and demand for Federal Reserve deposits," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 1-44, December.
    10. Evanoff, Douglas D., 1990. "An empirical examination of bank reserve management behavior," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 131-143, March.
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