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Suppose that eventually we reach the point where there are no longer huge excess reserves, and the equilibrium interest rate is significantly higher than the
Suppose that eventually we reach the point where there are no longer huge excess reserves, and the equilibrium interest rate is significantly higher than the interest rate on excess reserves, but the interest rate on excess reserves is still nonzero. What would the supply/demand figure from lecture 3 (taken from Ihrig, Meade, and Weinbachs paper) for reserves look like in this situation?
Figure I Banks' Demand for and the Fed's Supply of Reserve Balances before the Financial Crisis Fed sets supply of non- borrowed reserves by buying and selling assets Federal funds rate Supply Primary credit rate Safety valve banks can borroW reserves at discount Demand Reserves paid 0% interest pre-2008, so heavy excess reserves demanded only at 0 primary credit") rate Reserves $15 billion Figure I Banks' Demand for and the Fed's Supply of Reserve Balances before the Financial Crisis Fed sets supply of non- borrowed reserves by buying and selling assets Federal funds rate Supply Primary credit rate Safety valve banks can borroW reserves at discount Demand Reserves paid 0% interest pre-2008, so heavy excess reserves demanded only at 0 primary credit") rate Reserves $15 billionStep by Step Solution
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