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A public finance analysis of multiple reserve requirements

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  • Marco A. Espinosa-Vega
  • Steven Russell

Abstract

This paper analyzes multiple reserve requirements of the type that have been imposed by a number of developing countries. We show that previous theoretical work on this topic has not succeeded in providing a social welfare rationale for the existence of multiple reserve requirements: in the basic reserve requirements model, any allocation that can be supported by a multiple-reserves regime can also be supported by a single-bond reserve requirement. We go on to present extended versions of the model in which it is possible for a multiple-reserves regime to improve social welfare relative to any single-reserve (currency or bond) and/or deposit-tax regime. We demonstrate the empirical plausibility of our approach by providing a case study of Mexico, a country with extensive historical experience with multiple reserve requirements

Suggested Citation

  • Marco A. Espinosa-Vega & Steven Russell, 1998. "A public finance analysis of multiple reserve requirements," FRB Atlanta Working Paper 98-1, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:98-1
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    References listed on IDEAS

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    7. Espinosa-Vega, Marco A. & Russell, Steven, 2001. "Are There Optimal Multiple-Reserve Requirements?," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 85-104, January.
    8. Espinosa-Vega, Marco A, 1995. "Multiple Reserve Requirements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 762-776, August.
    9. Freeman, Scott & Haslag, Joseph H, 1996. "On the Optimality of Interest-Bearing Reserves in Economies of Overlapping Generations," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(3), pages 557-565, April.
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    12. Marco A. Espinosa-Vega & Steven Russell, 1998. "A public finance analysis of multiple reserve requirements," FRB Atlanta Working Paper 98-1, Federal Reserve Bank of Atlanta.
    13. Ruth A. Judson & Richard D. Porter, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 82(Oct), pages 883-903, October.
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    Cited by:

    1. Marco A. Espinosa-Vega & Steven Russell, 1998. "A public finance analysis of multiple reserve requirements," FRB Atlanta Working Paper 98-1, Federal Reserve Bank of Atlanta.
    2. Patrick Honohan, 2003. "Taxation of Financial Intermediation : Theory and Practice for Emerging Economines," World Bank Publications - Books, The World Bank Group, number 15122, December.

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    Developing countries; Finance; Public;
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