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Monetary policy in a world with interest on reserves

Author

Listed:
  • Charles T. Carlstrom
  • Timothy S. Fuerst

Abstract

Banks have long been required to hold reserves equal to a percentage of their net transactions accounts (checkable deposits, for example), but until recently, they earned no interest on those reserves. The Fed now pays interest on required and excess reserve balances, having been granted the authority by Congress and putting the policy into place ahead of schedule so that it could be used to help address the financial crisis. The policy will be particularly useful when it is time to start tightening policy and unwind the Fed?s balance sheet.

Suggested Citation

  • Charles T. Carlstrom & Timothy S. Fuerst, 2010. "Monetary policy in a world with interest on reserves," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jun.
    • Handle: RePEc:fip:fedcec:y:2010:i:jun10:n:2010-4
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    File URL: https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2010-economic-commentaries/ec-201004-monetary-policy-in-a-world-with-interest-on-reserves.aspx
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    Cited by:

    1. Hogan, Thomas L., 2021. "Bank lending and interest on excess reserves: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 69(C).

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