Working Paper

Federal Reserve Balance-Sheet Policy in an Ample Reserves Framework: An Inventory Approach

Abstract: I apply techniques from stochastic inventory theory to calibrate the optimal balance-sheet buffer needed to implement monetary policy in an ample reserves regime. I quantify the size of the buffer to be about $60 billion. This is small relative to the reserves needed for an ample reserves regime, even though the FOMC appears to act as if the cost of too few reserves is over 20 times as high as the cost of too many.

Keywords: reserves; monetary policy;

JEL Classification: E58; D25;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2023-11-08

Number: 23-25