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Alternatives For Reserve Balances And The Fed's Balance Sheet In The Future

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  • John B. Taylor

Abstract

This paper traces the evolution of the Fed's balance sheet in the years since the global financial crisis and presents economic reasons why the eventual size of the balance sheet and level of reserve balances should be such that the interest rate is determined by the demand and supply of reserves—in other words, by market forces—rather than by an administered rate under interest on excess reserves (IOER). The Fed would thus be operating as it did in the years before the crisis. The paper also contrasts this size with a system where the supply of reserves remains above the demand, and the interest rate must be administered through IOER.

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  • John B. Taylor, 2018. "Alternatives For Reserve Balances And The Fed's Balance Sheet In The Future," Economics Working Papers 18103, Hoover Institution, Stanford University.
    • Handle: RePEc:hoo:wpaper:18103
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    References listed on IDEAS

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    1. John B Taylor, 2009. "The Need to Return to a Monetary Framework," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 44(2), pages 63-72.
    2. John B. Taylor, 2009. "The Need for a Clear and Credible Exit Strategy," Book Chapters, in: John D. Ciorciari & John Taylor (ed.), The Road Ahead for the Fed, chapter 6, Hoover Institution, Stanford University.
    3. Cochrane, John H., 2014. "Monetary policy with interest on reserves," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 74-108.
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    Cited by:

    1. Bofinger, Peter & Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Wieland, Volker, 2018. "Vor wichtigen wirtschaftspolitischen Weichenstellungen. Jahresgutachten 2018/19 [Setting the Right Course for Economic Policy. Annual Report 2018/19]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201819.
    2. Lars P Feld & Volker Wieland, 2021. "The German Federal Constitutional Court Ruling and the European Central Bank’s Strategy," Journal of Financial Regulation, Oxford University Press, vol. 7(2), pages 217-253.

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