Tuesday, September 10, 2013

Christopher J. Neely: Would It Help To Eliminate Interest on Reserves?

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.


Jazzbumpa said...

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.



geerussell said...

That chart seems to confirm two things. The economy is weak and excess reserves are economically inert.