The Role of Excess Reserves in Modern Monetary Policy and Banking
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School of Business |
Master's thesis
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en
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48
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Abstract
Regulatory changes after the great financial crisis allowed the Federal Reserve to pay positive interest on excess reserves (IOER) held by depository institutions. The increase of excess reserves in Federal Reserve System was a direct consequence of Quantitative Easing, that effectively made the market for reserves saturated meaning, that the Fed can change its interest rate target and its reserve supply independently. IOER has since then became the single most important policy tool for Fed to target its interest rates and has made the monetary policy more effective. In this thesis, I will provide an overview on IOER as a monetary policy tool and its implications for the banking sector. In empirical part I show evidence, that the demand for reserves is no longer fully saturated as the interest rate target has been raised and the balance sheet unwinding (Quantitative Tightening) has started during the year 2018. Excess reserve scarcity could pose serious systemic risks in the banking sector and could cause difficulties for Federal Reserve in its Quantitative Tightening.Description
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Haaparanta, PerttiOther note
Tutkielman tiivistelmätiedoissa näkyvä hyväksymisvuosi on 2019.
The year of approval showing in the abstract of the thesis is 2019.
The year of approval showing in the abstract of the thesis is 2019.