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Should bank reserves earn interest?

  • Scott Freeman
  • Joseph H. Haslag

This article examines the effects and desirability of paying interest on required reserves. Scott Freeman and Joseph Haslag demonstrate that a policy of paying interest on reserves can make everyone better off, even if the interest must be financed by a tax on capital. An essential part of this policy is an open market operation that offsets any changes in the value of money.

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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (1995)
Issue (Month): Q IV ()
Pages: 25-33

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Handle: RePEc:fip:fedder:y:1995:i:qiv:p:25-33
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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. Bruce D. Smith, 1991. "Interest on Reserves and Sunspot Equilibria: Friedman's Proposal Reconsidered," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 93-105.
  3. Haslag, Joseph H., 1993. "Does it matter how monetary policy is implemented?," Working Papers 9310, Federal Reserve Bank of Dallas.
  4. Auernheimer, Leonardo, 1974. "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 598-606, May/June.
  5. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
  6. Joshua N. Feinman, 1993. "Reserve requirements: history, current practice, and potential reform," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 569-589.
  7. Romer, David, 1985. "Financial intermediation, reserve requirements, and inside money: A general equilibrium analysis," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 175-194, September.
  8. Sargent, Thomas & Wallace, Neil, 1985. "Interest on reserves," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 279-290, May.
  9. George S. Tolley, 1957. "Providing for Growth of the Money Supply," Journal of Political Economy, University of Chicago Press, vol. 65, pages 465.
  10. Bacchetta, Philippe & Caminal, Ramon, 1994. "A note on reserve requirements and public finance," International Review of Economics & Finance, Elsevier, vol. 3(1), pages 107-118.
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