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Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem


  • Aberg, Pontus
  • Corsi, Marco
  • Grossmann-Wirth, Vincent
  • Hudepohl, Tom
  • Mudde, Yvo
  • Rosolin, Tiziana
  • Schobert, Franziska


This paper discusses commercial banks’ demand for central bank reserves under two alternative monetary policy framework configurations, namely: (i) an interest rate corridor system with scarce liquidity, and (ii) a floor system with ample liquidity. It outlines the interaction between the monetary implementation framework used to steer short-term market interest rates and banks’ demand for reserves. We find that by implementing a floor system, the Eurosystem has eliminated the opportunity costs of holding reserves and enabled banks to hold relatively large buffers of reserves compared with the corridor system. Additionally, the demand for reserves may have increased endogenously, as the environment of ample liquidity conditions has incentivised many banks to adapt their business models. In parallel, the demand for reserves has also increased for more exogenous reasons such as post-global financial crisis liquidity regulation and increased liquidity concentration. Our estimates indicate an increase, over recent years, in the level of excess liquidity required in the euro area to avoid a rise in short-term market rates. Moreover, the dependency on the adopted monetary policy instruments and the external environment highlights the increased uncertainty in estimating future levels of required reserves JEL Classification: E41, E44, E50, E51, E58

Suggested Citation

  • Aberg, Pontus & Corsi, Marco & Grossmann-Wirth, Vincent & Hudepohl, Tom & Mudde, Yvo & Rosolin, Tiziana & Schobert, Franziska, 2021. "Demand for central bank reserves and monetary policy implementation frameworks: the case of the Eurosystem," Occasional Paper Series 282, European Central Bank.
  • Handle: RePEc:ecb:ecbops:2021282
    Note: 3357083

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    References listed on IDEAS

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    1. Jan Marc Berk & Jan Willem van den End, 2022. "Excess Liquidity and the Usefulness of the Money Multiplier," Credit and Capital Markets – Kredit und Kapital, Duncker & Humblot, Berlin, vol. 55(4), pages 457-488.
    2. Caccia, Enea & Tapking, Jens & Vlassopoulos, Thomas, 2024. "Central bank digital currency and monetary policy implementation," Occasional Paper Series 345, European Central Bank.
    3. Fricke, Daniel & Greppmair, Stefan & Paludkiewicz, Karol, 2024. "Excess reserves and monetary policy tightening," Discussion Papers 05/2024, Deutsche Bundesbank.
    4. Fegatelli, Paolo, 2022. "A central bank digital currency in a heterogeneous monetary union: Managing the effects on the bank lending channel," Journal of Macroeconomics, Elsevier, vol. 71(C).
    5. Helga Koo & Remco van der Molen & Robert Vermeulen & Ralph Verhoeks & Alessandro Pollastri, 2022. "A macroprudential perspective on cyber risk," Occasional Studies 2001, DNB.
    6. Mihaela Tofan, 2022. "A Regulatory Perspective on the Actual Challenges for the European Deposit Insurance Scheme," Laws, MDPI, vol. 11(5), pages 1-13, October.

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    More about this item


    central bank reserves; ECB; Eurosystem; liquidity management; monetary policy implementation;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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