Interest on Reserves Public Deposited

Creator Series Issue number
  • 211
Date Created
  • 1984-10
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 an attempt to finance the proposal through earnings on the central bank’s portfolio either gives rise to an equilibrium with a zero nominal interest rate or fails to give rise to an equilibrium.

Subject (JEL) Mot-clé Date Modified
  • 07/11/2019
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department
Publisher
  • Federal Reserve Bank of Minneapolis
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