Monetary policy implementation with an ample supply of reserves

Arbeitspapier

Methods of monetary policy implementation continue to change. The level of reserve supply - scarce, abundant, or somewhere in between - has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply likely lies somewhere between scarce and abundant reserves, thus highlighting the benefits of implementation with what could be called "ample" reserves. The Federal Reserve's announcement in October 2019 that it would maintain a level of reserve supply greater than the one that prevailed in early September is consistent with the implications of our framework.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2020-02

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Central Banks and Their Policies
• Subject: federal funds market ; monetary policy implementation ; ample reserve supply

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Afonso, Gara ; Kim, Kyungmin ; Martin, Antoine ; Nosal, Ed ; Potter, Simon M. ; Schulhofer-Wohl, Sam
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Chicago
• (where): Chicago, IL
• (when): 2020

Further information

• DOI: doi:10.21033/wp-2020-02
• Handle: http://hdl.handle.net/10419/230380
• Last update: 10.03.2025, 11:43 AM CET