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A public finance analysis of multiple reserve requirements

  • Marco Espinosa-Vega
  • Steven Russell

This paper analyzes multiple reserve requirements of the type that have been imposed by a number of developing countries. We show that previous theoretical work on this topic has not succeeded in providing a social welfare rationale for the existence of multiple reserve requirements. We go on to present a model in which it is possible for a multiple reserves regime to improve social welfare relative to simpler regimes involving reserve requirements and/or deposit taxes. We demonstrate the empirical plausibility of our approach by providing a case study of Mexico, a country with extensive historical experience with multiple reserve requirements.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 99-19.

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Date of creation: 1999
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Handle: RePEc:fip:fedawp:99-19
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  1. Marco Espinosa-Vega & Steven Russell, 1999. "A public finance analysis of multiple reserve requirements," Working Paper 99-19, Federal Reserve Bank of Atlanta.
  2. Richard D. Porter & Ruth A. Judson, 1996. "The location of U.S. currency: how much is abroad?," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 883-903.
  3. Bruce D. Smith, 1984. "Money and inflation in colonial Massachusetts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  4. Espinosa-Vega, Marco A. & Russell, Steven, 2001. "Are There Optimal Multiple-Reserve Requirements?," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 85-104, January.
  5. Mourmouras, Alex & Russell, Steven, 1992. "Optimal reserve requirements, deposit taxation, and the demand for money," Journal of Monetary Economics, Elsevier, vol. 30(1), pages 129-142, October.
  6. Smith, B.D., 1988. "Interest On Reserves And Sunspot Equilibria: Friedman'S Proposal Reconsidered," RCER Working Papers 119, University of Rochester - Center for Economic Research (RCER).
  7. Espinosa-Vega, Marco A, 1995. "Multiple Reserve Requirements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 762-76, August.
  8. de Paso, Jose I. Garcia, 1997. "Multiple reserve requirements: an irrelevance result," Economics Letters, Elsevier, vol. 56(3), pages 333-338, November.
  9. Sargent, Thomas J & Wallace, Neil, 1982. "The Real-Bills Doctrine versus the Quantity Theory: A Reconsideration," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1212-36, December.
  10. Freeman, Scott, 1987. "Reserve requirements and optimal seigniorage," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 307-314, March.
  11. Scott Freeman & Joseph H. Haslag, 1996. "On the optimality of interest-bearing reserves in economies of overlapping generations (*)," Economic Theory, Springer, vol. 7(3), pages 557-565.
  12. Thomas J. Sargent & Neil Wallace, 1981. "The real bills doctrine vs. the quantity theory: a reconsideration," Staff Report 64, Federal Reserve Bank of Minneapolis.
  13. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
  14. Neil Wallace, 1984. "Some of the choices for monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  15. Joseph H. Haslag & Joydeep Bhattacharya, 1999. "Seigniorage in a neoclassical economy: some computational results," Working Papers 9901, Federal Reserve Bank of Dallas.
  16. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
  17. Neil Wallace, 1983. "A legal restrictions theory of the demand for "money" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  18. 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.
  19. Sargent, Thomas & Wallace, Neil, 1985. "Interest on reserves," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 279-290, May.
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