Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228254
Authors: 
Minguez-Afonso, Gara
Kim, Kyungmin
Martin, Antoine
Nosal, Ed
Potter, Simon M.
Schulhofer-Wohl, Sam
Year of Publication: 
2020
Series/Report no.: 
Working Paper No. 2020-2
Abstract: 
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 2007-09 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.
Subjects: 
federal funds market
monetary policy implementation
ample reserve supply
JEL: 
E42
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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