Economics, Econometrics and Finance
4 years ago

Banks' reserve management leads to higher transaction costs and interest rates.

SSRN Electronic Journal
Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention
Leonardo Bartolini, Giuseppe Bertola, Alessandro Prati

Paper Summary

Banks tend to hold more money in reserves towards the end of each period when it costs more to do so. This behavior leads to higher interest rates in the U.S. federal funds market.

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