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Multiple reserve requirements in a monetary growth model

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  • Pere Gomis-Porqueras

    (Economics Department, University of Miami, P.O. Box 248126, Coral Gables, FL 33124-6550, USA)

Abstract

This paper considers a monetary growth model in which banks provide liquidity, and in which a government finances a deficit by printing money and selling bonds. In this context, I examine the possibility that the government may want to impose binding reserve requirements on banks' holdings of both money and government bonds. Conditions are established under which doing so increases steady state welfare and reduces the scope for indeterminacies. Furthermore, under a binding system of multiple reserve requirements we have that money is superneutral. On the other hand, if reserve requirements are imposed on cash holdings alone, increases in the steady state inflation rate adversely affect capital accumulation and long run real activity. Thus systems of multiple binding reserve requirements can insulate real activity from the consequences of inflationary taxation.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 19 (2002)
Issue (Month): 4 ()
Pages: 791-810

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Handle: RePEc:spr:joecth:v:19:y:2002:i:4:p:791-810

Note: Received: June 30, 2000; revised version: January 31, 2001
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Related research

Keywords: Spatial separation; Reserve requirements.;

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Cited by:
  1. Carrera, César, 2012. "Políticas de Encajes y Modelos Económicos," Working Papers 2012-006, Banco Central de Reserva del Perú.

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