Excess Reserves and Economic Activity

Scott Dressler () and Erasmus Kersting ()

No 24, Villanova School of Business Department of Economics and Statistics Working Paper Series from Villanova School of Business Department of Economics and Statistics

Abstract: This paper examines a DSGE environment with endogenous excess reserve holdings in the banking sector. Excess reserves act as an extensive margin of bank lending which is inactive in traditional limited participation models where banks hold minimal reserves by assumption. The results of our model suggest that this extensive margin of bank lending can dampen and even overcome the standard liquidity effect of monetary contractions, amplify the output response to productivity shocks, and bring about large, short-run responses to changes in the interest rate paid on reserves.

Keywords: Financial Intermediation; Excess Reserves; Liquidity Effect; Output Amplification (search for similar items in EconPapers)
JEL-codes: C68 E44 (search for similar items in EconPapers)
Date: 2013-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Excess reserves and economic activity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:vil:papers:24

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