A Comparison of Liquidity Management Tools in Seven Asian Economies

Abstract

We develop a simple theoretical model and then use bank data from seven Asian economies to investigate the effects on bank lending of different liquidity management tools used by central banks. We find that hiking reserve requirements to sterilise foreign exchange purchases will retard bank lending growth more than the issuance of central bank bills does, and that smaller and weaker banks are affected disproportionately by changes in reserve requirements.

Full Publication: Expanding the Boundaries of Monetary Policy in Asia and the Pacific

Keywords: Liquidity management, bank loan supply

JEL Classification: C23, E52, G21