Excess Reserves and Economic Activity
AbstractThis paper examines a DSGE environment with endogenous excess reserve holdings in the banking sector. Excess reserves act as an extensive margin of bank lending which is inactive in traditional limited participation models where banks hold minimal reserves by assumption. The results of our model suggest that this extensive margin of bank lending can dampen and even overcome the standard liquidity effect of monetary contractions, amplify the output response to productivity shocks, and bring about large, short-run responses to changes in the interest rate paid on reserves.
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Bibliographic InfoPaper provided by Villanova School of Business Department of Economics and Statistics in its series Villanova School of Business Department of Economics and Statistics Working Paper Series with number 24.
Date of creation: Jul 2013
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Financial Intermediation; Excess Reserves; Liquidity Effect; Output Amplification;
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-BAN-2013-07-15 (Banking)
- NEP-CBA-2013-07-15 (Central Banking)
- NEP-DGE-2013-07-15 (Dynamic General Equilibrium)
- NEP-MON-2013-07-15 (Monetary Economics)
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