Reserve Requirements and Economic Stability

Deskripsi

Challenges the conventional wisdom that high reserve requirements are unambiguously beneficial for economic stability. He argues that the standard view, which advocates for high (or even 100 percent) reserves to minimize the money multiplier and insulate the money stock from private sector disturbances, is incomplete. Baltensperger shifts the focus from narrow money stock control to the ultimate goal of output market and price level stability. The author concludes that there is no general, stability-based argument for preferring high reserve requirements over low ones, as the optimal level depends on the specific variance-covariance structure of the underlying economic disturbances.