Interest on reserves, regime shifts, and bank behavior

Donald H Dutkowsky, David D. VanHoose

Research output: Contribution to journalArticle

10 Scopus citations

Abstract

This paper demonstrates that in the post-2008 environment with interest on reserves, monetary policy actions can generate regime shifts that yield quantitatively and even qualitatively different responses of bank balance-sheet configurations and loan and deposit market outcomes to exogenous changes. In contrast to the view that a one-time structural change occurred in 2008, switching between several different regimes plausibly can arise depending upon settings of the reserve ratio, federal funds rate, and the interest rate on reserves. Our results explain stylized facts regarding excess reserves and interbank lending. Analysis with calibrated values indicates that such regime switching has occurred.

Original languageEnglish (US)
Pages (from-to)1-15
Number of pages15
JournalJournal of Economics and Business
Volume91
DOIs
StatePublished - May 1 2017

Keywords

  • Bank lending
  • Federal funds rate
  • Interest on reserves
  • Monetary policy

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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