Discussion Paper
When Are Central Bank Reserves Ample?
Abstract: The Federal Reserve (Fed) implements monetary policy in a regime of ample reserves, whereby short-term interest rates are controlled mainly through the setting of administered rates. To do so, the quantity of reserves in the banking system needs to be large enough that everyday changes in reserves do not cause large variations in the policy rate, the so-called federal funds rate. As the Fed shrinks its balance sheet following the plan laid out by the Federal Open Market Committee (FOMC) in 2022, how can it assess when to stop so that the supply of reserves remains ample? In the first post of a two-part series, based on the methodology developed in our recent Staff Report, we propose to assess the ampleness of reserves in real time by estimating the slope of the reserve demand curve.
Keywords: ample reserves; monetary policy; early-warning signals;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2024-08-13
Number: 20240813