Interest on reserves

Thomas Sargent, Neil Wallace

    Research output: Contribution to journalArticle

    Abstract

    In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate, whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that financing through earnings on the central bank's portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium.

    Original languageEnglish (US)
    Pages (from-to)279-290
    Number of pages12
    JournalJournal of Monetary Economics
    Volume15
    Issue number3
    DOIs
    StatePublished - 1985

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    Financing
    Central bank
    Tax
    Real returns
    Nominal interest rate
    General equilibrium

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Finance

    Cite this

    Interest on reserves. / Sargent, Thomas; Wallace, Neil.

    In: Journal of Monetary Economics, Vol. 15, No. 3, 1985, p. 279-290.

    Research output: Contribution to journalArticle

    Sargent, T & Wallace, N 1985, 'Interest on reserves', Journal of Monetary Economics, vol. 15, no. 3, pp. 279-290. https://doi.org/10.1016/0304-3932(85)90016-9
    Sargent, Thomas ; Wallace, Neil. / Interest on reserves. In: Journal of Monetary Economics. 1985 ; Vol. 15, No. 3. pp. 279-290.
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