Interest on bank reserves and optimal sweeping

The Optimal Conduct of Monetary Policy With Interest on Reserves

Interest on Reserves and Daylight Credit

B anks hold reserves in the form of account balances at the central bank and vault cash. The average aggregate reserves of depository institutions in the United States during 2005 was $46 billion. Banks use these reserves to settle payments to other banks (and other participants in financial markets) during the day. In 2005, the average daily value of Fedwire fund transfers—the primary means by...

The Macroeconomic Effects of Interest on Reserves

This paper uses a New Keynesian model with banks and deposits, calibrated to match the US economy, to study the macroeconomic effects of policies that pay interest on reserves. While their effects on output and inflation are small, these policies require important adjustments in the way that the monetary authority manages the supply of reserves, as liquidity effects vanish and households’ portf...

Monetary Policy with Interest on Reserves

I analyze monetary policy with interest on reserves and a large balance sheet. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy can peg the nominal rate, and determine expected inflation. With sticky prices, monetary policy can also affect real interest rates and output, thoug...

Imperfect financial integration, uncovered interest parity and central bank foreign exchange reserves

This paper explores the implications of costly international portfolio adjustment by private agents, on the effects of central bank interventions on interest rates, and on short and long-horizon uncovered interest parity (UIP). Using an incomplete-markets two-country monetary model with bonds in positive net supply, we show that with portfolio adjustment costs, surprise central bank interventio...