Voluntary Reserve Targets

Garth Baughman and Francesca Carapella

Journal of Money, Credit and Banking, 2020, vol. 52, issue 2-3, 583-612

Abstract: We study monetary policy implementation through an operating regime involving voluntary reserve targets (VRTs). Operating regimes based on reserve requirements may lead to a collapse in interbank trade, as they have since the financial crisis. We show that, no matter the abundance of reserves, VRTs encourage market activity and support the central bank's control over interest rates. We consider (i) the impact of anticipated and unanticipated liquidity injections by the central bank on market outcomes and (ii) a comparison with the implementation framework currently adopted by the Federal Reserve. Overall, a VRT framework may provide several advantages over other frameworks.

Date: 2020
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https://doi.org/10.1111/jmcb.12579

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Working Paper: Voluntary Reserve Targets (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:52:y:2020:i:2-3:p:583-612

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