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Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity

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Abstract

As central banks shrink their balance sheets to restore price stability and phase out expansionary programs, gauging the ampleness of reserves has become a central topic to policymakers and academics alike. The reason is that the ampleness of reserves informs when to slow and then stop quantitative tightening (QT). The Federal Reserve, for example, implements monetary policy in a regime of ample reserves, whereby the quantity of reserves in the banking system needs to be large enough such that everyday changes in reserves do not cause large variations in short-term rates. The goal is therefore to implement QT while ensuring that reserves remain sufficiently ample. In this post, we review how to gauge the ampleness of reserves using the new Reserve Demand Elasticity (RDE) measure, which will be published monthly on the public website of the Federal Reserve Bank of New York as a standalone product.

Suggested Citation

  • Gara Afonso & Domenico Giannone & Gabriele La Spada & John C. Williams, 2024. "Tracking Reserve Ampleness in Real Time Using Reserve Demand Elasticity," Liberty Street Economics 20241017, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:98984
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    More about this item

    Keywords

    ample reserves; monetary policy; implementation;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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