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In this paper we investigate how well banks manage their reserves. The optimal policy takes into account expected foregone interest on excess reserves and penalty costs for going below required reserves. Using a unique panel data set on daily clearing house settlements of a cross-section of Mexican banks we estimate the deposit uncertainty banks face, and in turn their optimal reserve behavior. The most important variables in forecasting the deposit uncertainty are the interbank fund-transfers of the day, certain calendar dates, and the interest rate differential between the money market rate and the discount rate--a measure reflecting the bank's opportunity cost of money holdings. For most banks, the model's prediction accord relatively well with the observed reserve behavior of banks. The model produces reserve costs that are significantly smaller relative to the case when reserves are set via a simple rule of thumb. Furthermore, alternative motives for holding reserves (such as liquidity and reputation effects) do not seem to explain why certain banks hold relatively large reserves. [ABSTRACT FROM AUTHOR]

The article comments on the article "What Do Money Market Models Tell Us About How to Implement Monetary Policy?" by Richard G. Anderson and Robert H. Rasche, published in the November 1982 issue of the "Journal of Money, Credit, and Banking." The article discusses the role of the model for bank loans in determining money and reserves and the influence of interest rate volatility on monetary control. The authors provide a comparison between different models. Several tables and equations are provided to help illustrate the study.

The article discusses how money stock can be controlled by the monetary authority through economic policy as a way to accomplish the goals of its intermediate targets. The root-mean-square deviation (RMSC) is used to assess the control of the intermediate targets. The optimal control framework used here is based on an econometric model that represents the economy and it is assumed that the model is linear. The version of the model that is used in this experiment is based on a short run money market model that was developed by the U.S. Federal Reserve Board.

The article presents a comparison of the contemporaneous reserve accounting (CRA) and lagged reserve accounting (LRA) methods and the different policies related to both. A theoretical model is used that considers how banks will behave given specific variables like cash in reserve management, the time between bank deposits, money supply, and borrowing by reserve banks. Many calculations are used to demonstrate the uses of CRA and LRA and the actual method for determining the appropriate amount of bank reserves.

The primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets. The crux of this reconciliation is the distinction between "technical" discount rate changes that are endogenous and "nontechnical" changes which contain some informative policy implications. In essence, we attempt to separate expected discount rate changes from unexpected changes, or equivalently, the expected component of discount rate changes from the unexpected component. If markets are efficient, the former should have no announcement effects while the latter may be associated with an announcement effect. Accordingly, the focus of the empirical analysis is on the interaction between discount rate exogeneity, the specific monetary policy regime, and announcement effects. In addition, we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency. [ABSTRACT FROM AUTHOR]

A microeconomic model of bank demand for borrowed reserves from the Federal Reserve is developed based upon constrained cost minimization. The derived demand function was found to correspond to behavior appropriate to the unknown switchpoint switching regression problem. When estimated, parameters generally conformed to theoretical expectations. The model was also tested for existence of switching regression behavior against a model similar to Goldfeld and Kane. Significance exceeded 99% in all cases. With the advent of reserve intermediate targeting, it appears especially necessary to reinvestigate the behavior determining this important source of reserves. [ABSTRACT FROM AUTHOR]

This paper analyzes the role of the Federal Reserve to money markets and bank management regarding their reserves. The author outlines three goals: to test the applicability of a model that views bank borrowing from the Reserve's discount window as a buffer to short-run reserve flows; to examine how the price of Federal Funds is influenced by the eight large money market institutions; and to investigate the existence of structural changes in the market. Weekly data from 1960-1968 is used throughout the paper.

The article discusses how anti-recessionary policies involving low interest rates might put pressure on the foreign reserve position of the United States by bringing about a conversion of foreign-held dollar balances in gold. The article also examines the influence of monetary and fiscal measures on current account. The article's general conclusion is that those movements in foreign holdings between gold and dollar assets throughout the years, which could be attributed to interest-rate changes, account for only a small fraction of total foreign dollar holdings.

The implementation of monetary policy has changed significantly since 2008. In particular, very large excess reserves in the financial system have led to the creation of new tools to manage the federal funds rate. Given these changes, some observers have wondered how money market interest rates would respond to "liftoff," the Fed's first interest rate increase from effectively zero. Since liftoff in December 2015, it appears that the Fed's influence over short-term interest rates remains intact. [ABSTRACT FROM AUTHOR]

A global game framework of bank runs is used to analyse a bank's choice of its reserve level and short-term interest rate. Higher level of reserves and a lower short-term interest rate would decrease the probability of bank runs. When the bank's reserve policy is transparent, it will hold excess reserves to discourage withdrawals by patient depositors. This inefficiency of excess reserves increases with the proportion of impatient depositors. When the bank has private information about its reserve level, it will follow a more risky strategy of choosing lower reserves and higher early return than what maximizes depositor welfare and increases the probability of bank runs. [ABSTRACT FROM AUTHOR]

Previous literature believes that a commercial depreciation is associated with higher financial premium and more depletion of foreign reserves. This study re-investigates this belief. Analytical results indicate that a commercial depreciation with higher financial premium and more depletion of foreign reserves depend on the combined influences of the conditions that individuals are impatient as well as foreign interest rates are bigger than time preference rates rather than only policies of commercial depreciation. Non-distortion taxation does not solve the balance-of-payments difficulties. An exact negative relationship between foreign reserves and the financial premium cannot be found. [ABSTRACT FROM AUTHOR]

This paper uses QUEST III, a multi-region DSGE model, to study the macroeconomic effects of a gradual equalization of official foreign reserves between dollars and euros. We simulate a scenario of a shift in the composition of foreign reserves holdings from the present ratio of 65% dollars and 25% euros to equal 45% shares over a 10 years period. We assume imperfect substitutability between financial assets to allow this shift to have real effects. Our simulations point towards small real effects due to the reduction in real interest rates resulting from this shift in official holdings. [ABSTRACT FROM AUTHOR]

This paper presents an outline of a methodology of 'evidence-based economics'. The question whether an economic statement is evidence-based must be answered on three different levels. The first level concerns measurement: it asks whether claims made about economic quantities such as inflation, unemployment, growth or poverty are justified by the data and measurement procedures. The second level concerns induction: it asks whether claims made about the relations between economic quantities (such as 'number of babies born predicts growth', 'change in money causes change in monetary income', 'non-borrowed reserves can be used to control the interest rate'), are justified by the inference procedures. The third level concerns idealisation: it asks whether the quantities and relations selected are justified by the stated aim of the inquiry. The paper provides a discussion of these three types of investigation and of some solutions that have been offered. [ABSTRACT FROM AUTHOR]

Many emerging market countries have suffered financial crises. One view blames soft pegs for these crises. Adherents of this view suggest that countries move to corner solutions—hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves, and interest rates to assess whether there is evidence that country practice is moving toward corner solutions. We focus on whether countries that claim they are floating are indeed doing so. We find that countries that say they allow their exchange rate to float mostly do not—there seems to be an epidemic case of "fear of floating." [ABSTRACT FROM AUTHOR]

Presents charts on financial statistics in the U.S. Tables depicting the federal reserve and money stock; Absorption of reserve funds; Statistics on interest rates.

We analyze Fed funds rate changes in GARCH-in-mean (GARCH-M) models and find that daily rate change and variance patterns differ with the tuning of the rate observation, but that all patterns are generally consistent with optimal reserve account management. We also find that Fed funds daily and intraday variances exhibit trends and persistence, and that daily variance effects differ when using marginal rates versus daily weighted average rates. Furthermore, we find that conditional variances do not provide information about daily or intraday rate changes. Our results provide support for the use of GARCH models for studies on other financial assets. [ABSTRACT FROM AUTHOR]

In an earlier paper, where we examined how regulations and procedures influenced the stability of money supply functions and the effects of money demand on money supply, it was argued that our knowledge of the money supply process, the reliability and predictive power of our models, and the precision of monetary control would all be enhanced by more careful consideration of such salient features of the financial system [15]. Believing that joining the core issues in the ongoing debate over various aspects of monetary control depends in part on pinning down the proximate effects, if any, of the October 1979 changes in the Fed's operating procedures, this paper examines essential features of the stochastic structure linking reserves, money, and interest rates under the procedures then adopted. In the next section, we briefly review the analytical framework developed in our earlier paper and use it to illustrate the nature of the changes which occurred under the new strategy. The third section presents empirical work bearing on the central relationships and compares the post-1979 results with our earlier findings. The concluding section develops the implications of the analysis for recurring issues in monetary control. [ABSTRACT FROM AUTHOR]

Friedman's (1960) proposal to pay interest on (required) reserves is considered in a setting that eliminates the indeterminacy of steady-state equilibrium discussed by Sargent and Wallace (1985). In an overlapping-generations model where the real rate of interest is technologically determined, the payment of interest on reserves results in a determinate, Pareto optimal steady-state equilibrium. However, interest payments on reserves reduce the steady-state welfare of all young agents and, for many economies, result in the existence of stationary sunspot equilibria. This is the case even if such equilibria cannot exist when reserves do not earn interest. [ABSTRACT FROM AUTHOR]

In this paper we developed a stochastic model for determining the optimal stock of international reserves. We derived formally the explicit solution for optimal reserve holdings as a function of the rate of interest, the variance of the stochastic process governing international payments and receipts and the mean rate of net payments. The model was tested empirically under the assumption that on average net payments are zero, and the results were consistent with the predictions of the theoretical model. It should be noted, however, that other empirical studies of the demand for reserves, using different specifications and different time periods, have encountered substantial difficulties in incorporating the rate of interest in the estimated reserve equation (for references see Frenkel (1978)). This might indicate that viewing the rate of interest as the measure of forgone earnings may not be always appropriate. Indeed, our own experiments indicate that the estimated parameters are somewhat sensitive to the specification and to the choice of the time period. Therefore, at the present, we view our empirical results only as suggestive. [ABSTRACT FROM AUTHOR]

Numerous studies find shifts in the interest-rate response to money-announcement surprises following the Federal Reserve policy changes of October 1979, October 1982, and February 1984. In recent issues of this journal, LeSage used a multiprocess mixture model to detect shifts in the interest-rate response and reported that shifts occur at times other than these dates. We provide stimulations that show that use of the mixture model produces inaccurate estimates of when response shifts occur and often identifies shifts when none occur. These results are consistent with existing work that shows that detecting structural change is difficult when the independent variable has zero mean. [ABSTRACT FROM AUTHOR]

Tests the validity of 'reserve price setting' and 'reserve quantity setting' behavior of the monetary authorities. Control of the monetary authorities on short-term interest rates as an exogenous policy instrument; Role of market forces in the determination of long-term rates; Dependence of long-term rates on market participants' collective expections of the level of future short-term rates.

Models the ex ante value of discount window operations as an option providing financial institutions with a right to purchase reserves at potentially below market rates of interest. Model of discount privilege; Test specification for analysis of the discount option; Empirical evidence of the discount option.

Despite the much discussed writings of Riccardo and Malthus, and their successors, rent is a phenomenon still very little understood. Rent is acknowledged to be made up of many complicated factors which the average rent payer is seldom in a position to analyze. Nevertheless, when high rents pinch, there is the inevitable pressure that government do something about it. Over, the past forty years, governments— state, local, and federal—have been especially sensitive to pressures for political action. Two types of procedure have been tried. The opportunist approach calls for direct governmental action, such as the setting up of a public authority to act for government or to qualify special agencies to receive government subsidies to offset high housing costs. Less easily understood, by the otherwise absorbed public, have been various attempts to deal with the underlying factors that affect housing. These range from rent regulation, through mortgage insurance and tax limitation, to subsidies designed to encourage private enterprise. [ABSTRACT FROM AUTHOR]

In the past, charges have been leveled at the annuity method of estimating depreciation, some so serious as to have completely removed it from both formal and practical consideration. These contentions will be discussed in this paper, and in this process will be elucidated what is believed to be a more general annuity method than that ordinarily used. The criticisms with which this paper will be concerned are: 1) imputed interest on the fixed output asset is included in the cost of production; 2) each year's stream of revenues is assumed to be the same; 3) an arbitrary rate is used; 4) difficulty of application is too great. The belief regarding imputed interest arises from the contention that not only is the cost of the asset written off, but also interest on the asset. Because a rate is applied to the asset to show its growth during an accounting period as it approaches one period closer to its stream of net revenues, the suspicion is immediately amused that this must be interest. In order that the validity of this contention can be examined, investigation must first be made as to what rate is pertinent to the annuity method.

The article comments on the argument presented by economist Harley L. Lutz concerning the theory of creating reserve fund. The author notes that Lutz has presented, as an argument against accumulating a fund, what amounts largely, to an argument against decumulating the fund, once it has been established. According to Lutz, the theory of a reserve is illusory, in that it can only serve the true function of a reserve by being converted into a debt held by the public. And if and when the reserve must be drawn upon through liquidation, funds to meet the draft must be obtained by selling to the public some of the fund assets. The purpose of accumulating a fund is to keep it, if that can possibly be done. Having lent moneys to the Government, the fund will share in the Government's appropriations for interest, appropriations which, assuming equal interest rates, will be the same, fund or no fund, since they will be fixed otherwise by the amount of the Government's debt, and that debt will always be the accumulated fiscal deficits.

One may say that an extension of Zecher's model to include a supply of foreign exchange enriches the model without unduly complicating it. Together with the reinterpretation of the effect of interest rates on international reserves, it provides, in my opinion, a more appealing framework to explain international reserve flows in Australia. [ABSTRACT FROM AUTHOR]

Presents charts that illustrate the financial reserves in the United States as of February 1999. Federal Reserve bank interest rates; Reserve requirements of depository institutions; Federal Reserve open market transactions.

The article discusses the economic aspects of the reinsurance industry in Australia and challenges faced by the industry. Topics discussed include issues faced by the reinsurance industry such as low interest rates, interest rate reduction and diminishing reserve releases, interest of the Australian Prudential Regulation Authority (APRA) in maintain rules regarding reinsurance and some predictions for the reinsurance market in 2014 like greater use of multi-year reinsurance.