Federal Reserve Balance-Sheet Policy in an Ample Reserves Framework: An Inventory Approach
I apply techniques from stochastic inventory theory to calibrate the optimal balance-sheet buffer needed to implement monetary policy in an ample reserves regime. I quantify the size of the buffer to be about $60 billion. This is small relative to the reserves needed for an ample reserves regime, even though the FOMC appears to act as if the cost of too few reserves is over 20 times as high as the cost of too many.
Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.
Suggested Citation
Haubrich, Joseph G. 2023. “Federal Reserve Balance-Sheet Policy in an Ample Reserves Framework: An Inventory Approach.” Federal Reserve Bank of Cleveland, Working Paper No. 23-25. https://doi.org/10.26509/frbc-wp-202325
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