Reserve Requirement Analysis using a Dynamical System of a Bank based on Monti-Klein model of Bank's Profit Function
Commercial banks and other depository institutions in some countries are required to hold in reserve against deposits made by their customers at their Central Bank or Federal Reserve. Although some countries have been eliminated it, this requirement is useful as one of many Central Bank's regulation made to control rate of inflation and conditions of excess liquidity in banks which could affect the monetary stability. The amount of this reserve is affected by the volumes of the commercial bank's loan and deposit, and also by the bank's Loan to Deposit Ratio (LDR) value. In this research, a dynamical system of the volume of deposits (dD/dt) and loans (dL/dt) of a bank is constructed from the bank profit equation by Monti-Klein. The model is implemented using the regulation of Bank of Indonesia, and analysed in terms of the behaviour of the solution. Based on some simplifying assumptions in this model, the results show that eventhough the LDR values at the initial points of two solutions are the same, the behavior of solutions will be significantly different due to different magnitude of L and D volumes.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christopher Ball & Javier Reyes, 2009. "International reserve holdings: interest rates matter!," Applied Economics Letters, Taylor & Francis Journals, vol. 16(4), pages 343-348.
- Zhao, Juan, 2009. "Long time behaviour of stochastic interest rate models," Insurance: Mathematics and Economics, Elsevier, vol. 44(3), pages 459-463, June.
- Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1306.0468. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.