TY - JOUR
T1 - Interest on reserves
AU - Sargent, Thomas
AU - Wallace, Neil
PY - 1985/5
Y1 - 1985/5
N2 - In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate, whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that financing through earnings on the central bank's portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium.
AB - In a general equilibrium setting, we study versions of the proposal to pay interest on reserves at the market rate. We argue that the proposal makes the demand for total reserves indeterminate, whether interest is paid on total reserves or on required reserves only. One consequence is that tax financing of the proposal gives rise to a continuum of equilibria, equilibria which differ in real returns and consumption allocations. Another consequence is that financing through earnings on the central bank's portfolio either gives rise to an equilibrium with a zero nominal interest rate or to no equilibrium.
UR - http://www.scopus.com/inward/record.url?scp=0000155701&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=0000155701&partnerID=8YFLogxK
U2 - 10.1016/0304-3932(85)90016-9
DO - 10.1016/0304-3932(85)90016-9
M3 - Article
AN - SCOPUS:0000155701
VL - 15
SP - 279
EP - 290
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
SN - 0304-3932
IS - 3
ER -