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Retail deposit sweep programs: issues for measurement, modeling and analysis

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  • Richard G. Anderson

Abstract

Since January 1994, many banks in the United States have initiated retail-deposit sweep programs which reduce statutory reserve requirements by re-labeling transaction deposits as money market deposit accounts. As a result, approximately half of aggregate transaction deposits are now excluded from M1. This re-labeling is invisible to customers and, hence, cannot affect their demand for transaction balances. Nevertheless, a recent article in this Journal explored the effect of this invisible re-labeling on M1 demand. This note emphasizes that those results are spurious, and offers additional examples of measurement distortions due to retail deposit sweep activity.

Suggested Citation

  • Richard G. Anderson, 2003. "Retail deposit sweep programs: issues for measurement, modeling and analysis," Working Papers 2003-026, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2003-026
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    References listed on IDEAS

    as
    1. Dutkowsky, Donald H & Cynamon, Barry Z, 2003. " Sweep Programs: The Fall of M1 and Rebirth of the Medium of Exchange," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 263-279, April.
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    Blog mentions

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    1. Negative nominal interest rates: back to the future?
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2015-02-09 19:26:52
    2. Nullzinsgrenze: Kosten für Lagerung und Sicherung
      by Acemaxx-Analytics in Acemaxx-Analytics on 2015-03-07 21:05:00

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    Cited by:

    1. Peter N. Ireland, 2009. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," American Economic Review, American Economic Association, vol. 99(3), pages 1040-1052, June.
    2. Calza Alessandro & Zaghini Andrea, 2011. "Welfare Costs of Inflation and the Circulation of U.S. Currency Abroad," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-21, May.
    3. Lotti, Francesca & Marcucci, Juri, 2007. "Revisiting the empirical evidence on firms' money demand," Journal of Economics and Business, Elsevier, vol. 59(1), pages 51-73.
    4. Duca, John V. & VanHoose, David D., 2004. "Recent developments in understanding the demand for money," Journal of Economics and Business, Elsevier, vol. 56(4), pages 247-272.
    5. Calza, Alessandro & Zaghini, Andrea, 2010. "Sectoral money demand and the great disinflation in the US," Working Paper Series 1218, European Central Bank.
    6. David Cook & Woon Gyu Choi, 2007. "Financial Market Risk and U.S. Money Demand," IMF Working Papers 07/89, International Monetary Fund.

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    Keywords

    Bank reserves ; Money supply;

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