Journal of Financial Intermediation Vol. 10 No. 1 2001
Are There Optimal Multiple-Reserve Requirements?
Abstract
A number of developing countries have adopted deficit finance regimes involving multiple- (currency and bond) reserve requirements. A key characteristic of these regimes is that the real interest rates on reservable bonds are higher than the real return rates on currency, so that the nominal interest rates on the bonds are positive. We seek an efficiency-based explanation for the existence of multiple-reserve regimes and for this key characteristic. We find that there are economies in which some of the efficient allocations can be supported only by multiple-reserve requirements, and that positive nominal bond rates may be needed to support some of these allocations. We also find that there are economies in which allocations supported by multiple-reserve regimes with negative nominal bond rates Pareto dominate single-reserve allocations, even when the latter are efficient relative to other single-reserve allocations. Journal of Economic Literature Classification Numbers: E42, E58, H62.
- DOI
- 10.1006/jfin.2000.0303
- Volume
- 10
- Issue
- 1
- Pages
- 85-104
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref