The real effects of reserve requirements

We review arguments for and against reserve requirements and conclude that the main question is whether a distinction between money creation and intermediation can be made. We argue that such a distinction can be made in
We review arguments for and against reserve requirements and conclude that the main question is whether a distinction between money creation and intermediation can be made. We argue that such a distinction can be made in a money-in-advance economy and show that if the money-in-advance constraint is universally binding then reserve requirements on checkable accounts have no effect on intermediation. We then proceed to show that in a model in which trade is uncertain and sequential, a fractional reserve banking system gives rise to endogenous monetary shocks. These endogenous monetary shocks lead to fluctuations in capacity utilisation and waste. When the moneyin-advance constraint is universally binding, a 100% reserve requirement on checkable accounts can eliminate this waste.
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Metadaten
Author:Benjamin Bental, Benjamin Eden
URN:urn:nbn:de:hebis:30:3-229402
Series (Serial Number):CFS working paper series (1998, 18b)
Document Type:Working Paper
Language:English
Date of Publication (online):2011/10/18
Year of first Publication:1998
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2011/10/18
Tag:Reserve requirements; intermediation; monetary shocks; money creation
Pagenumber:47
HeBIS PPN:280079125
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:E41 Demand for Money
E51 Money Supply; Credit; Money Multipliers
E58 Central Banks and Their Policies
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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