Interest on reserves

Thomas Sargent, Neil Wallace

Research output: Contribution to journalArticle

28 Citations (Scopus)

Abstract

In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate, whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that financing through earnings on the central bank's portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium.

Original languageEnglish (US)
Pages (from-to)279-290
Number of pages12
JournalJournal of Monetary Economics
Volume15
Issue number3
DOIs
StatePublished - Jan 1 1985

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Financing
Central bank
Tax
Real returns
Nominal interest rate
General equilibrium

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Sargent, Thomas ; Wallace, Neil. / Interest on reserves. In: Journal of Monetary Economics. 1985 ; Vol. 15, No. 3. pp. 279-290.
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Interest on reserves. / Sargent, Thomas; Wallace, Neil.

In: Journal of Monetary Economics, Vol. 15, No. 3, 01.01.1985, p. 279-290.

Research output: Contribution to journalArticle

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