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Should bank reserves earn interest?

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Author Info

  • Scott Freeman
  • Joseph H. Haslag

Abstract

This article examines the effects and desirability of paying interest on required reserves. Scott Freeman and Joseph Haslag demonstrate that a policy of paying interest on reserves can make everyone better off, even if the interest must be financed by a tax on capital. An essential part of this policy is an open market operation that offsets any changes in the value of money.

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File URL: http://www.dallasfed.org/assets/documents/research/er/1995/er9504c.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1995)
Issue (Month): Q IV ()
Pages: 25-33

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Handle: RePEc:fip:fedder:y:1995:i:qiv:p:25-33

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Keywords: Bank reserves;

References

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  1. Smith, Bruce D, 1991. "Interest on Reserves and Sunspot Equilibria: Friedman's Proposal Reconsidered," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 93-105, January.
  2. Romer, David, 1985. "Financial intermediation, reserve requirements, and inside money: A general equilibrium analysis," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 175-194, September.
  3. Freeman, Scott, 1987. "Reserve requirements and optimal seigniorage," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 307-314, March.
  4. Joseph H. Haslag & Scott E. Hein, 1990. "Does it matter how monetary policy is implemented?," Research Paper 9009, Federal Reserve Bank of Dallas.
  5. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  6. George S. Tolley, 1957. "Providing for Growth of the Money Supply," Journal of Political Economy, University of Chicago Press, vol. 65, pages 465.
  7. Caminal, R. & Bacchetta, P., 1992. "A Note on Reserve Requirements and Public Finance," UFAE and IAE Working Papers 176.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. Sargent, Thomas & Wallace, Neil, 1985. "Interest on reserves," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 279-290, May.
  9. Joshua N. Feinman, 1993. "Reserve requirements: history, current practice, and potential reform," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 569-589.
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Cited by:
  1. Pere Gomis-Porqueras & Adrian Peralta-Alva, 2008. "Optimal monetary and fiscal policies in a search theoretic model of monetary exchange," Working Papers 2008-015, Federal Reserve Bank of St. Louis.

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