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Are There Optimal Multiple-Reserve Requirements?

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  • Espinosa-Vega, Marco A.
  • Russell, Steven

Abstract

A number of developing countries have adopted deficit-finance regimes involving multiple reserve requirements. One question the previous literature on this phenomenon has not addressed is whether multiple-reserves regimes can improve on regimes involving single-currency-reserve requirements if the policy settings of the latter regimes are assumed to be chosen optimally. We find that a "conventional" multiple-reserves regime--a regime with positive nominal rates on reservable bonds--cannot Pareto-improve an optimal single-currency-regime but can, in some cases, increase social welfare over such a regime.
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  • 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.
  • Handle: RePEc:eee:jfinin:v:10:y:2001:i:1:p:85-104
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    References listed on IDEAS

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    1. Freeman, Scott, 1987. "Reserve requirements and optimal seigniorage," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 307-314, March.
    2. Bullard, James & Russell, Steven, 1999. "An empirically plausible model of low real interest rates and unbacked government debt," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 477-508, December.
    3. Espinosa-Vega, Marco A, 1995. "Multiple Reserve Requirements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 762-776, August.
    4. Richard D. Porter & Ruth Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
    5. Mourmouras, Alex & Russell, Steven, 1992. "Optimal reserve requirements, deposit taxation, and the demand for money," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 129-142, October.
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    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.

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