IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Use of Reserve Requirements in an Optimal Monetary Policy Framework

  • Hernando Vargas

    ()

  • Pamela Cardozo

    ()

Registered author(s):

    We analyse three models to determine the conditions under which reserve requirements are used as a part of an optimal monetary policy framework in an inflation targeting regime. In all cases the Central Bank (CB) minimizes an objective function that depends on deviations of inflation from its target, the output gap and deviations of reserve requirements from its optimal long term level. In a closed economy model we find that optimal monetary policy implies setting reserve requirements at their long term level, while adjusting the policy interest rate to face macroeconomic shocks. Reserve requirements are included in an optimal monetary policy response in an open economy model with the same CB objective function and in a closed economy model in which the CB objective function includes financial stability. The relevance, magnitude and direction of the movements of reserve requirements depend on the parameters of the economy and the shocks that affect it.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.banrep.gov.co/docum/ftp/be_716I.pdf
    Download Restriction: no

    Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 716i.

    as
    in new window

    Length: 20
    Date of creation: Jul 2012
    Date of revision:
    Handle: RePEc:bdr:borrec:716i
    Contact details of provider: Postal: Cra 7 # 14-78 Piso 7
    Phone: (57-1) 3431111
    Fax: (57-1) 2841686
    Web page: http://www.banrep.org/publicaciones/pub_borra.htm
    Email:


    More information through EDIRC

    References listed on IDEAS
    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.:

    as in new window
    1. Hernando Vargas & Carlos Varela & Yanneth R. Betancourt & Norberto Rodríguez, . "Effects of Reserve Requirements in an Inflation Targeting Regime: The Case of Colombia," Borradores de Economia 587, Banco de la Republica de Colombia.
    2. Reinhart, Carmen M & Reinhart, Vincent R, 1999. "On the Use of Reserve Requirements in Dealing with Capital Flow Problems," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 27-54, January.
    3. Glocker, Ch. & Towbin P., 2012. "The Macroeconomic Effects of Reserve Requirements," Working papers 374, Banque de France.
    4. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
    5. Rocío Betancourt & Hernando Vargas, 2009. "Encajes Bancarios Y Tasas De Interés," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 27(59), pages 158-186, Junio.
    6. Glocker, C. & Towbin, P., 2012. "Reserve Requirements for Price and Financial Stability - When Are They Effective?," Working papers 363, Banque de France.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:716i. 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: (Clorith Angélica Bahos Olivera)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.