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Efficiency of Reserve Requirements as a Monetary Policy Instrument

Author

Listed:
  • Mirjana Palic

    (National Bank of Serbia)

  • Nikola Tasic

    (National Bank of Serbia)

Abstract

This paper investigates macroeconomic implications of using reserve requirements as a monetary policy instrument. The result suggests that reserve requirement has not been an efficient instrument. We derive this broad conclusion as this instrument does not have expected effect on the credit activity of commercial banks. Furthermore, reserve requirements increases private foreign debt, while the impact on the foreign liabilities is not statistically significant. In contrast to reserve requirements, 2-weeks repo rate of NBS decreases private foreign debt, and this impact is statistically significant. Core and headline inflations are determined by the exchange rate movements, while the direct effect of reserve requirements and NBS interest rate is not confirmed.

Suggested Citation

  • Mirjana Palic & Nikola Tasic, 2008. "Efficiency of Reserve Requirements as a Monetary Policy Instrument," Working papers 11, National Bank of Serbia.
    • Handle: RePEc:nsb:wpaper:11
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    More about this item

    Keywords

    reserve requirements; credit; foreign debt; inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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