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Retail deposit sweep programs: issues for measurement, modeling and analysis

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  • Richard G. Anderson

Abstract

Since January 1994, many banks in the United States have initiated retail-deposit sweep programs which reduce statutory reserve requirements by re-labeling transaction deposits as money market deposit accounts. As a result, approximately half of aggregate transaction deposits are now excluded from M1. This re-labeling is invisible to customers and, hence, cannot affect their demand for transaction balances. Nevertheless, a recent article in this Journal explored the effect of this invisible re-labeling on M1 demand. This note emphasizes that those results are spurious, and offers additional examples of measurement distortions due to retail deposit sweep activity.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2003-026.

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Date of creation: 2003
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Handle: RePEc:fip:fedlwp:2003-026

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Keywords: Bank reserves ; Money supply;

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  1. Dutkowsky, Donald H & Cynamon, Barry Z, 2003. " Sweep Programs: The Fall of M1 and Rebirth of the Medium of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 263-79, April.
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Cited by:
  1. Calza, Alessandro & Zaghini, Andrea, 2011. "Welfare costs of inflation and the circulation of US currency abroad," Working Paper Series 1326, European Central Bank.
  2. David Cook & Woon Gyu Choi, 2007. "Financial Market Risk and U.S. Money Demand," IMF Working Papers 07/89, International Monetary Fund.
  3. Lotti, Francesca & Marcucci, Juri, 2007. "Revisiting the empirical evidence on firms' money demand," Journal of Economics and Business, Elsevier, vol. 59(1), pages 51-73.
  4. Alessandro Calza & Andrea Zaghini, 2011. "Sectoral money demand and the great disinflation in the US," Temi di discussione (Economic working papers) 785, Bank of Italy, Economic Research and International Relations Area.
  5. Peter N. Ireland, 2008. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," NBER Working Papers 14098, National Bureau of Economic Research, Inc.
  6. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.

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