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Efficiency of Reserve Requirements as a Monetary Policy Instrument

  • Mirjana Palic

    (National Bank of Serbia)

  • Nikola Tasic

    (National Bank of Serbia)

This paper investigates macroeconomic implications of using reserve requirements as a monetary policy instrument. The result suggests that reserve requirement has not been an efficient instrument. We derive this broad conclusion as this instrument does not have expected effect on the credit activity of commercial banks. Furthermore, reserve requirements increases private foreign debt, while the impact on the foreign liabilities is not statistically significant. In contrast to reserve requirements, 2-weeks repo rate of NBS decreases private foreign debt, and this impact is statistically significant. Core and headline inflations are determined by the exchange rate movements, while the direct effect of reserve requirements and NBS interest rate is not confirmed.

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File URL: http://www.nbs.rs/export/sites/default/internet/latinica/90/90_0/2008_11_MP_NT.pdf
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Paper provided by National Bank of Serbia in its series Working papers with number 11.

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Length: 27 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:nsb:wpaper:11
Contact details of provider: Postal: National Bank of Serbia, 12 Kralja Petra St, 11 000 Belgrade, Republic of Serbia
Phone: 381-11/3248-841
Fax: 381-11/3234-120
Web page: http://www.nbs.rs
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  1. De Gregorio, Jose & Edwards, Sebastian & Valdes, Rodrigo O., 2000. "Controls on capital inflows: do they work?," Journal of Development Economics, Elsevier, vol. 63(1), pages 59-83, October.
  2. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  3. Reinhart, Carmen & Reinhart, Vincent, 1999. "On the use of reserve requirements in dealing with capital flow problems," MPRA Paper 13703, University Library of Munich, Germany.
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