NBER paper estimates demand for bank reserves in US
Fed needs global estimates of demand curve slope to maintain interest rate control, authors say
A new working paper produces global estimates of the demand for bank reserves in the US, an important input to the Federal Reserve’s monetary operations.
Authors Ricardo Lagos and Gastón Navarro note the demand curve for reserves is non-linear. It is flat where reserves are abundant, has a “gentle slope” as reserves diminish, and becomes steep when reserves are scarce. If the Fed withdraws too many reserves and ends up on the steep part of the curve, it could lose control of the federal funds
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