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A historical assessment of the rationales and functions of reserve requirements

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  • Marvin Goodfriend
  • Monica Hargraves

Abstract

Laws requiring banks to hold a volume of reserves equal to a prescribed fraction of their deposits originated in this country more than a century ago. Since then both the financial system and the rationales supporting reserve requirements have changed considerably. Nevertheless, the practice of requiring reserves has continued without interruption. This article examines the history and function of reserve requirements at the national level and assesses the validity of various prominent reserve requirement rationales.

Suggested Citation

  • Marvin Goodfriend & Monica Hargraves, 1983. "A historical assessment of the rationales and functions of reserve requirements," Working Paper 83-01, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:83-01
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    References listed on IDEAS

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    1. Coats, Warren L, Jr, 1976. "Lagged Reserve Accounting and the Money Supply Mechanism," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(2), pages 167-180, May.
    2. McCallum, Bennett T., 1981. "Price level determinacy with an interest rate policy rule and rational expectations," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 319-329.
    3. Auernheimer, Leonardo, 1974. "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 598-606, May/June.
    4. O. M. W. Sprague, 1914. "The Federal Reserve Act of 1913," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 28(2), pages 213-254.
    5. anonymous, 1938. "The history of reserve requirements for banks in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 953-972.
    6. 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 1212-1236, December.
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    Keywords

    Bank reserves; Federal Reserve System;

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