Journal of Political Economy Vol. 79 No. 4 1971
Banks' Demand for Excess Reserves
Abstract
A bank's demand function for excess reserves is derived using inventory theory. In the model, banks hold excess reserves as a means of reducing the cost of meeting their reserve requirements in a world in which they are faced with random reserve flows and transaction costs. The resulting demand curve is kinked at very low interest rates (estimated to be between 0.3 and 0.5 percent for the Treasury bill rate). This kinked demand curve offers an explanation of the large accumulation of excess reserves during the 1930s that compares favorably with alternative hypotheses.
- DOI
- 10.1086/259789
- Volume
- 79
- Issue
- 4
- Pages
- 805-825
- Language
- en
- Sources
- crossref openalex