JOURNAL ARTICLE
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Money Stock Targeting with Alternative Reserve Requirement Systems
Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 107 (1987), Iss. 3 : pp. 379–395
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von Hagen, Jürgen
Abstract
The significance of current and lagged required reserves accounting schemes for the performance of short-run money stock control is analysed in the framework of a rational expectations model. In contrast to previous studies, we emphasize the implications of alternative accounting rules for the dynamic structure of optimal bank behaviour. Due to the role of interest rate expectations in the money supply and the demand for reserves, the usual conjecture of unambiguous inferiority of LRR fails to hold. LRR is preferable to CRR if expectations effects are strong and money market disturbancies dominate disturbancies in the reserves market.