Authors: Gara Afonso, Kyungmin Kim, Antoine Martin, Ed Nosal, Simon Potter, and Sam Schulhofer-Wohl
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Staff Reports
Monetary Policy Implementation with an Ample Supply of Reserves
Number 910
January 2020 Revised July 2023
January 2020 Revised July 2023
JEL classification: E42, E58
We offer a parsimonious model of reserve demand to study the trade-offs associated with various monetary policy implementation frameworks. Prior to the 2007-09 financial crisis, many central banks supplied scarce reserves to execute their interest rate policies. In response to the crisis, central banks undertook quantitative easing policies that greatly expanded their balance sheets and, by extension, the amount of reserves they supplied. When the crisis and its aftereffects passed, central banks were in a position to choose a framework that has reserves that are: (1) abundant—by keeping their balance sheets and reserves at the expanded level; (2) scarce—by vastly decreasing their balance sheets and reserves; or (3) somewhere in between abundant and scarce—by moderately decreasing their balance sheets and reserves. We find that the best policy implementation outcomes are realized when reserves are somewhere in between scarce and abundant. This outcome is consistent with the Federal Open Market Committee's 2019 announcement to implement monetary policy in a regime with an ample supply of reserves.
Author Disclosure Statement(s)
Gara Afonso
The author 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.
Kyungmin Kim
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.
Antoine Martin
I declare that I have 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.
Ed Nosal
In regard to the article "Monetary Implementation with an Ample Supply of Reserves" co-authored with Gara Afonso, Kyungmin Kim, Antoine Martin, Simon Potter and Sam Schulhofer-Wohl, I have not received any financial support from any interested party, nor am I or was I a paid or unpaid officer, board member, or director of a relevant profit or non-profit organization.
Simon Potter
The author, Simon M. Potter, declares that he had 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.
Sam Schulhofer-Wohl
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.
The author 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.
Kyungmin Kim
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.
Antoine Martin
I declare that I have 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.
Ed Nosal
In regard to the article "Monetary Implementation with an Ample Supply of Reserves" co-authored with Gara Afonso, Kyungmin Kim, Antoine Martin, Simon Potter and Sam Schulhofer-Wohl, I have not received any financial support from any interested party, nor am I or was I a paid or unpaid officer, board member, or director of a relevant profit or non-profit organization.
Simon Potter
The author, Simon M. Potter, declares that he had 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.
Sam Schulhofer-Wohl
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.
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