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Accounting and the potency of open market operations

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  • Brian Jacobsen

Abstract

Through a mathematical programming setup, reserve accounting is shown to be auxiliary to accomplishing monetary policy operating objectives. This article outlines a theoretical way of comparing the potency of open market operations under different reserve accounting procedures. It is shown that if the interest sensitivity of reservable liabilities is greater than the interest sensitivity of reserves, then lagged reserve accounting makes Federal Reserve open market purchases and 'sells' of securities more powerful in affecting the federal funds rate.

Suggested Citation

  • Brian Jacobsen, 2007. "Accounting and the potency of open market operations," Applied Economics Letters, Taylor & Francis Journals, vol. 14(2), pages 83-86.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:2:p:83-86
    DOI: 10.1080/13504850500425980
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    References listed on IDEAS

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    1. Jeremy C. Stein, 1998. "An Adverse-Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 466-486, Autumn.
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