Authors: Gara Afonso, Gabriele La Spada, Thomas M. Mertens, and John C. Williams
-
-
The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
Do you have a request for information and records? Learn how to submit it.
Learn about the history of the New York Fed and central banking in the United States through articles, speeches, photos and video.
-
-
-
The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
-
-
-
The New York Innovation Center bridges the worlds of finance, technology, and innovation and generates insights into high-value central bank-related opportunities.
The growing role of nonbank financial institutions, or NBFIs, in U.S. financial markets is a transformational trend with implications for monetary policy and financial stability.
The New York Fed offers the Central Banking Seminar and several specialized courses for central bankers and financial supervisors.
-
-
Staff Reports
The Optimal Supply of Central Bank Reserves Under Uncertainty
Number 1077
November 2023 Revised December 2025
November 2023 Revised December 2025
JEL classification: E52, E58, E41, E42
We provide an analytically tractable theoretical model for the optimal supply of reserves and the design of standing liquidity facilities under uncertainty about banks’ demand for reserves. Absent a lending facility, uncertainty creates a precautionary motive to supply additional reserves. Introducing a lending facility generates a tradeoff between rate control and market disintermediation. If the facility rate is set optimally, the presence of the facility reduces the optimal supply of reserves. If the central bank cannot set the lending rate optimally, the optimal supply of reserves can be higher or lower than absent a facility.
Author Disclosure Statement(s)
Gara Afonso
Gara Afonso declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Gabriele La Spada
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Thomas M. Mertens
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
John C. Williams
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Gara Afonso declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Gabriele La Spada
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Thomas M. Mertens
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
John C. Williams
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.
Suggested Citation:
Afonso, Gara, Gabriele La Spada, Thomas M. Mertens, and John C. Williams. 2023. “The Optimal Supply of Central Bank Reserves under Uncertainty.” Federal Reserve Bank of New York Staff Reports, no. 1077, November. https://doi.org/10.59576/sr.1077
Afonso, Gara, Gabriele La Spada, Thomas M. Mertens, and John C. Williams. 2023. “The Optimal Supply of Central Bank Reserves under Uncertainty.” Federal Reserve Bank of New York Staff Reports, no. 1077, November. https://doi.org/10.59576/sr.1077
By continuing to use our site, you agree to our Terms of Use and Privacy Statement. You can learn more about how we use cookies by reviewing our Privacy Statement. 
