Abstract
When trade is uncertain and sequential, a fractional reserve banking system may give rise to endogenous monetary shocks. These endogenous monetary shocks lead to fluctuations in capacity utilization and waste. When fluctuations in the currency/deposit ratio are the important source of the monetary shocks, a high reserve requirement on checkable accounts can minimize this waste. When fluctuations in the fraction of credit-card transactions are important, then low reserve requirements will minimize waste.
| Original language | English |
|---|---|
| Pages (from-to) | 1597-1620 |
| Number of pages | 24 |
| Journal | Journal of Monetary Economics |
| Volume | 49 |
| Issue number | 8 |
| DOIs | |
| State | Published - Nov 2002 |
Keywords
- Business fluctuations
- Reserve requirements
ASJC Scopus subject areas
- Finance
- Economics and Econometrics