Monetary Policy Implementation with an Ample Supply of Reserves

57 Pages Posted: 14 Jun 2021 Last revised: 30 Jun 2021

See all articles by Kyungmin Kim

Kyungmin Kim

Board of Governors of the Federal Reserve System

Gara Minguez-Afonso

affiliation not provided to SSRN

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Simon Potter

Peterson Institute for International Economics

Sam Schulhofer-Wohl

Federal Reserve Banks - Federal Reserve Bank of Dallas; Federal Reserve Bank of Chicago

Date Written: February, 2020

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.

JEL Classification: E42, E58

Suggested Citation

Kim, Kyungmin and Minguez-Afonso, Gara and Nosal, Ed and Potter, Simon and Schulhofer-Wohl, Sam, Monetary Policy Implementation with an Ample Supply of Reserves (February, 2020). FEDS Working Paper No. 2020-20, Available at SSRN: https://ssrn.com/abstract=3863793 or http://dx.doi.org/10.17016/FEDS.2020.020

Kyungmin Kim (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Gara Minguez-Afonso

affiliation not provided to SSRN

No Address Available

Ed Nosal

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Simon Potter

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Sam Schulhofer-Wohl

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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