Working Paper

Reserve Demand Estimation with Minimal Theory

Abstract: We propose a new reserve-demand estimation strategy—a middle ground between atheoretical reduced-form econometric approaches and fully structural quantitative-theoretic approaches. The strategy consists of an econometric specification that satisfies core restrictions implied by theory and controls for changes in administered-rate spreads that induce rotations and shifts in reserve demand. The resulting approach is as user-friendly as existing reduced-form econometric methods but improves upon them by incorporating a minimal set of theoretical restrictions that any reserve demand must satisfy. We apply this approach to U.S. data and obtain reserve-demand estimates that are broadly consistent with the structural estimates in Lagos and Navarro (2023).

https://doi.org/10.21144/wp26-07

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Working Paper

Publication Date: 2026-03-30

Number: 26-07