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The effect of interest on reserves on monetary policy


  • John R. Walter
  • Renee Courtois


In October 2008 the Federal Reserve began paying banks interest on the reserves they hold. This action was intended to remove the implicit, distortionary tax that reserve requirements impose on banks, as well as help the Fed maintain the fed funds rate at its target. Going forward, interest on reserves is likely to simplify monetary policy implementation, as well as allow the Fed to pursue separate monetary and credit policies.

Suggested Citation

  • John R. Walter & Renee Courtois, 2009. "The effect of interest on reserves on monetary policy," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue Dec.
  • Handle: RePEc:fip:fedreb:y:2009:i:dec:n:09-12

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    Cited by:

    1. Ryota Nakatani, 2016. "Twin Banking and Currency Crises and Monetary Policy," Open Economies Review, Springer, vol. 27(4), pages 747-767, September.

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    Inflation (Finance) ; Monetary policy;


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