A Positive Model of Reserve Requirements and Interest on Reserves: A Clearinghouse Interpretation of the Federal Reserve System
AbstractThis paper develops a positive model of reserve requirements and interest on reserves, based on the observation that Congress exempted the Fed from a legal restriction that had prevented private clearinghouses from issuing their own currency. Eliminating the restriction provided the Fed with a source of revenue that could be used to finance general government outlays and to pay implicit interest on reserves. The model implies that the government’s financing requirements help explain reserve requirement movements and that interest rates on reserves vary with market loan rates. Cointegration, error-correction, and Granger-causality tests provide supporting evidence.
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Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 66 (1999)
Issue (Month): 1 (July)
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- Mark G. Guzman, 2008.
"The Impact Of Paying Interest On Reserves In The Presence Of Government Deficit Financing,"
Western Economic Association International, vol. 46(4), pages 624-642, October.
- Mark G. Guzman, 2004. "The impact of paying interest on reserves in the presence of government deficit financing," Working Papers 04-06, Federal Reserve Bank of Dallas.
- Mark G. Guzman, 2006. "The impact of paying interest on reserves in the presence of government deficit financing," Economics & Management Discussion Papers em-dp2006-39, Henley Business School, Reading University.
- Mark G. Guzman, 2006. "The impact of paying interest on reserves in the presence of government deficit financing," Economic Analysis Research Group Working Papers earg-wp2006-08, Henley Business School, Reading University.
- Mark G. Guzman, 2007. "The Impact of Paying Interest on Reserves in the Presence of Government Deficit Financing," Money Macro and Finance (MMF) Research Group Conference 2006 92, Money Macro and Finance Research Group.
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