Optimal Bank’s Liquidity Supply by the Central Bank: A Microeconomic Approach

24 Pages Posted: 15 Mar 2012 Last revised: 22 Oct 2012

See all articles by Jules Tinang Nzesseu

Jules Tinang Nzesseu

Institut Sous-régional de Statistique et d'Economie Appliquée (ISSEA)

Date Written: March 12, 2012

Abstract

The excess liquidity of commercial banks is very often mentioned in the CEMAC as one of the limits of monetary policy implementation by BEAC. In this paper, we tried to address excess reserves in the CEMAC banking system looking from the point of view of commercial banks. Indeed, commercial banks may decide to hold reserves above the level required by the regulator for costs minimization perspectives. By minimising the cost function of each commercial bank, we derived the optimal level of excess liquidity desired by it. The obtained results allow classifying the banks of the CEMAC zone into two categories depending on the level of excess reserves necessary to minimize their costs and provide the amounts of liquidity desired by them. The Central Bank can then use this information to improve its liquidity supply to the banking system by anticipating the demands of liquidity by commercial banks during open market operations.

Keywords: Excess reserves, optimization, kernel density

JEL Classification: C14, C61, E51

Suggested Citation

Nzesseu, Jules Tinang, Optimal Bank’s Liquidity Supply by the Central Bank: A Microeconomic Approach (March 12, 2012). Available at SSRN: https://ssrn.com/abstract=2021729 or http://dx.doi.org/10.2139/ssrn.2021729

Jules Tinang Nzesseu (Contact Author)

Institut Sous-régional de Statistique et d'Economie Appliquée (ISSEA) ( email )

Po. Box: 294
Yaoundé, CENTRE 237
Cameroon

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