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The Macroeconomic Effects on Interest on Reserves

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  • Peter N. Ireland

    ()
    (Boston College)

Abstract

This paper uses a New Keynesian model with banks and deposits, calibrated to match the US economy, to study the macroeconomic effects of policies that pay interest on reserves. While their effects on output and inflation are small, these policies require important adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish and households' portfolio shifts increase banks' demand for reserves when short-term interest rates rise. Money and monetary policy remain linked in the long run, however, since policy actions that change the price level must change the supply of reserves proportionately.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 772.

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Date of creation: 01 Feb 2011
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Handle: RePEc:boc:bocoec:772

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Keywords: banking; reserves; interest; central banking;

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  1. Belongia, Michael T. & Ireland, Peter N., 2006. "The Own-Price of Money and the Channels of Monetary Transmission," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 429-445, March.
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  3. Peter N. Ireland, 2002. "Technology Shocks in the New Keynesian Model," Boston College Working Papers in Economics 536, Boston College Department of Economics.
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Cited by:
  1. Andrew Keinsley, 2013. "Do You Mind if I Round?: Eliminating the Penny A Structural Analysis," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201309, University of Kansas, Department of Economics.
  2. Hiroshi Fujiki, 2013. "Japanese Money Demand from the Regional Data: An Update and Some Additional Results," IMES Discussion Paper Series 13-E-04, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Scott J. Dressler & Erasmus Kersting, 2013. "Excess Reserves and Economic Activity," Villanova School of Business Department of Economics and Statistics Working Paper Series 24, Villanova School of Business Department of Economics and Statistics.

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