Affiliation:
1. Federal Reserve Bank of Cleveland
Abstract
I apply techniques from stochastic inventory theory to calibrate the optimal balance-sheet buffer needed to implement monetary policy in an ample reserves regime. I quantify the size of the buffer to be about $60 billion. This is small relative to the reserves needed for an ample reserves regime, even though the FOMC appears to act as if the cost of too few reserves is over 20 times as high as the cost of too many.
Publisher
Federal Reserve Bank of Cleveland
Reference33 articles.
1. 1. Afonso, Gara, Roc Armenter, and Benjamin Lester. 2019. "A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow." Review of Economic Dynamics, Fragmented Financial Markets, 33 (July): 177-204. https://doi.org/10.1016/j.red.2019.04.004.
2. 2. Afonso, Gara, Darrell Duffie, Lorenzo Rigon, and Hyun Song Shin. 2022. "How Abundant Are Reserves? Evidence from the Wholesale Payment System." Staff Report Number 1040. Federal Reserve Bank of New York. https://www.newyorkfed.org/research/staff_reports/sr1040.html.
3. 3. Afonso, Gara, Domenico Giannone, Gabriele La Spada, and John C. Williams. 2022. "Scarce, Abundant, or Ample? A Time-Varying Model of the Reserve Demand Curve." Staff Report Number 1019. Federal Reserve Bank of New York. https://www.newyorkfed.org/research/staff_reports/sr1019.html.
4. 4. Afonso, Gara, Kyungmin Kim, Antoine Martin, Ed Nosal, Simon Potter, and Sam Schulhofer-Wohl. 2020. "Monetary Policy Implementation with an Ample Supply of Reserves." Working Paper 2020-02. Federal Reserve Bank of Chicago. https://www.chicagofed.org/publications/working-papers/2020/2020-02.
5. 5. Arrow, Kenneth J. 1958. "Historical Background." In Studies in the Mathematical Theory of Inventory and Production, edited by Samuel Karlin, Herbert E. Scarf, and Kenneth J. Arrow. Stanford, Calif.: Stanford University Press.