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The Macroeconomic Effects of Interest on Reserves

  • Peter N. Ireland

This paper uses a New Keynesian model with banks and deposits to study the macroeconomic effects of policies that pay interest on reserves. While their effects on output and inflation are small, these policies require major adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish in the short run. In the long run, however, the additional degree of freedom the monetary authority acquires by paying interest on reserves is best described as affecting the real quantity of reserves: policy actions that change prices must still change the nominal quantity of reserves proportionally.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18409.

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Date of creation: Sep 2012
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Handle: RePEc:nbr:nberwo:18409
Note: ME
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  28. Belongia, Michael T. & Ireland, Peter N., 2006. "The Own-Price of Money and the Channels of Monetary Transmission," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 429-445, March.
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