Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/282429 
Year of Publication: 
2023
Series/Report no.: 
CESifo Working Paper No. 10741
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
The major central banks now operate in a regime of abundance of bank reserves. As a result, they can only raise the money market rate by increasing the rate of remuneration of bank reserves. This, in turn, leads to large transfers of the central banks' profits (and more) to commercial banks that will become unsustainable and makes the transmission of monetary policies less effective. We propose a two-tier system of reserve requirements that would only remunerate the reserves in excess of the minimum required. This would drastically reduce the giveaways to banks, allow the central banks to maintain their current operating procedures and make monetary policies more effective in fighting inflation.
Subjects: 
monetary policy
bank reserves
minimum reserve requirements
JEL: 
E52
E58
Document Type: 
Working Paper
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