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A study of U.S. monetary policy implementation: demand for reserves on a period average basis

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  • Ruth Judson
  • Elizabeth Klee
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    Abstract

    This paper provides new estimates of banks' demand for excess reserve balances on a period average basis. Consistent with theoretical work, we find that the demand for excess depends critically on uncertainty of flows in and out of reserve accounts. We also document the variability of demand for excess reserve balances by institution size, evaluate different models for forecasting demand for excess on a period average basis, and report the forecasting performance of each of these models. Finally, we present analysis of the period of financial turmoil seen over the year since August, 2007.

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    File URL: http://www.federalreserve.gov/pubs/feds/2009/200922/200922abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/2009/200922/200922pap.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2009-22.

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    Date of creation: 2009
    Date of revision:
    Handle: RePEc:fip:fedgfe:2009-22
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    Web page: http://www.federalreserve.gov/
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    Keywords: Bank reserves;

    This paper has been announced in the following NEP Reports:

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    1. Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2001. "Banks' reserve management, transaction costs, and the timing of Federal Reserve intervention," Journal of Banking & Finance, Elsevier, vol. 25(7), pages 1287-1317, July.
    2. James D. Hamilton, 1996. "Measuring the liquidity effect," Working Papers in Applied Economic Theory 96-06, Federal Reserve Bank of San Francisco.
    3. James P. Dow Jr., 2001. "The Demand for Excess Reserves," Southern Economic Journal, Southern Economic Association, vol. 67(3), pages 685-700, January.
    4. Clouse, James A. & Dow Jr., James P., 1999. "Fixed costs and the behavior of the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1015-1029, July.
    5. Clouse, James A. & Dow, James Jr., 2002. "A computational model of banks' optimal reserve management policy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1787-1814, September.
    6. Hamilton, James D., 1998. "The supply and demand for Federal Reserve deposits," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 1-44, December.
    7. Carpenter, Seth & Demiralp, Selva, 2006. "The Liquidity Effect in the Federal Funds Market: Evidence from Daily Open Market Operations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 901-920, June.
    8. Carpenter, Seth & Demiralp, Selva, 2006. "Anticipation of Monetary Policy and Open Market Operations," MPRA Paper 704, University Library of Munich, Germany.
    9. Evanoff, Douglas D., 1990. "An empirical examination of bank reserve management behavior," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 131-143, March.
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