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Federal Reserve Balance-Sheet Policy in an Ample Reserves Framework: An Inventory Approach

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  • Joseph G. Haubrich

Abstract

I apply techniques from stochastic inventory theory to calibrate the optimal balance-sheet buffer needed to implement monetary policy in an ample reserves regime. I quantify the size of the buffer to be about $60 billion. This is small relative to the reserves needed for an ample reserves regime, even though the FOMC appears to act as if the cost of too few reserves is over 20 times as high as the cost of too many.

Suggested Citation

  • Joseph G. Haubrich, 2023. "Federal Reserve Balance-Sheet Policy in an Ample Reserves Framework: An Inventory Approach," Working Papers 23-25, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:97254
    DOI: 10.26509/frbc-wp-202325
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    References listed on IDEAS

    as
    1. Gara Afonso & Roc Armenter & Benjamin Lester, 2019. "A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 177-204, July.
    2. Michele Cavallo & Marco Del Negro & W. Scott Frame & Jamie Grasing & Benjamin A. Malin & Carlo Rosa, 2019. "Fiscal Implications of the Federal Reserve's Balance Sheet Normalization," International Journal of Central Banking, International Journal of Central Banking, vol. 15(5), pages 255-306, December.
    3. Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February.
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    More about this item

    Keywords

    reserves; monetary policy;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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