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A note on US excess bank reserves and the credit contraction

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  • Khemraj, Tarron

Abstract

This paper reports aggregate bank excess liquidity preference curves for the pre-crisis and crisis periods. It is argued that the flat curve reflects a threshold lending rate at which point banks accumulate reserves passively. Moreover, the expansion of reserves – when the lending rate threshold is binding – does not lead to credit expansion. The latter would require policies that directly increase the demand for loans, particularly by the business sector.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18702.

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Date of creation: Oct 2009
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Handle: RePEc:pra:mprapa:18702

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Keywords: bank reserves; minimum loan interest rate; credit crunch;

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  1. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 938-45, September.
  2. Todd Keister & Antoine Martin & James McAndrews, 2008. "Divorcing money from monetary policy," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Sep, pages 41-56.
  3. P.R. Agenor & J. Aizenman & A. Hoffmaister, 2000. "The Credit Crunch in East Asia: What can Bank Excess Liquid Assets Tell us?," NBER Working Papers 7951, National Bureau of Economic Research, Inc.
  4. Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 15(Dec).
  5. Edlin Aaron S. & Jaffee Dwight M., 2009. "Show Me The Money," The Economists' Voice, De Gruyter, De Gruyter, vol. 6(4), pages 1-5, March.
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