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A Simple General Equilibrium Model of Large Excess Reserves

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  • Ennis, Huberto M.

    (Federal Reserve Bank of Richmond)

Abstract

I study a non-stochastic, perfect foresight, general equilibrium model with a banking system that may hold large excess reserves when the central bank pays interest on reserves. The banking system also faces a capital constraint that may or may not be binding. When the rate of interest on reserves equals the market rate, if the quantity of reserves is large and bank capital is not scarce, the price level is indeterminate. However, for a large enough level of reserves, the bank capital constraint becomes binding and the price level moves one to one with the quantity of reserves.

Suggested Citation

  • Ennis, Huberto M., 2014. "A Simple General Equilibrium Model of Large Excess Reserves," Working Paper 14-14, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:14-14
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    References listed on IDEAS

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    1. Jeremy C. Stein, 2012. "Monetary Policy as Financial Stability Regulation," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 57-95.
    2. Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Dec).
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    Cited by:

    1. Afonso, Gara M. & Armenter, Roc & Lester, Benjamin, 2018. "A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow," Working Papers 18-10, Federal Reserve Bank of Philadelphia.
    2. Roc Armenter & Benjamin Lester, 2017. "Excess Reserves and Monetary Policy Implementation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 23, pages 212-235, January.
    3. Benjamin Lester & Roc Armenter, 2015. "Excess Reserves and Monetary Policy Normalization," 2015 Meeting Papers 586, Society for Economic Dynamics.
    4. Andolfatto, David & Williamson, Stephen, 2015. "Scarcity of safe assets, inflation, and the policy trap," Journal of Monetary Economics, Elsevier, vol. 73(C), pages 70-92.
    5. Keister, Todd & Martin, Antoine & McAndrews, James J., 2015. "Floor systems and the Friedman rule: the fiscal arithmetic of open market operations," Staff Reports 754, Federal Reserve Bank of New York.
    6. Cochrane, John H., 2014. "Monetary policy with interest on reserves," Journal of Economic Dynamics and Control, Elsevier, vol. 49(C), pages 74-108.
    7. repec:eee:jebusi:v:91:y:2017:i:c:p:1-15 is not listed on IDEAS

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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