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Excess Reserves and Economic Activity

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Abstract

This paper examines a DSGE environment with endogenous excess reserve holdings in the banking sector. Excess reserves act as an extensive margin of bank lending which is inactive in traditional limited participation models where banks hold minimal reserves by assumption. The results of our model suggest that this extensive margin of bank lending can dampen and even overcome the standard liquidity effect of monetary contractions, amplify the output response to productivity shocks, and bring about large, short-run responses to changes in the interest rate paid on reserves.

Suggested Citation

  • Scott J. Dressler & Erasmus Kersting, 2013. "Excess Reserves and Economic Activity," Villanova School of Business Department of Economics and Statistics Working Paper Series 24, Villanova School of Business Department of Economics and Statistics.
  • Handle: RePEc:vil:papers:24
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    Cited by:

    1. repec:eee:jmacro:v:54:y:2017:i:pb:p:149-160 is not listed on IDEAS
    2. George J. Bratsiotis, 2016. "Liquidity Regulation, Monetary Policy and Welfare," Centre for Growth and Business Cycle Research Discussion Paper Series 228, Economics, The Univeristy of Manchester.
    3. repec:eee:jebusi:v:91:y:2017:i:c:p:1-15 is not listed on IDEAS
    4. Guillaume Khayat, 2017. "The Corridor's Width as a Monetary Policy Tool," Working Papers halshs-01611650, HAL.
    5. Bratsiotis, George J., 2018. "Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel," EconStor Preprints 172770, ZBW - German National Library of Economics.
    6. George J. Bratsiotis, 2018. "Credit Risk, Excess Reserves and Monetary Policy: The Deposits," Centre for Growth and Business Cycle Research Discussion Paper Series 236, Economics, The Univeristy of Manchester.

    More about this item

    Keywords

    Financial Intermediation; Excess Reserves; Liquidity Effect; Output Amplification;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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