From Economic Synopses at the St. Louis Fed:
How much would eliminating interest paid on reserves increase bank loans and thus monetary aggregates? The experience of the ECB provides a case study of such an effect. On July 11, 2012, the ECB reduced the interest it pays on excess reserves held at its deposit facility from 25 basis points to zero. The chart shows that the European monetary aggregates did not grow unusually fast in the months following this action.
2 comments:
Maybe a 0.25% rate isn't much of an incentive.
But excess reserves are highest ever and climbing, while MZM velocity is at an all time low.
Something is gumming up the works.
http://research.stlouisfed.org/fred2/graph/?g=mgi
?????
JzB
That chart seems to confirm two things. The economy is weak and excess reserves are economically inert.
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