Reserve requirements and output fluctuations

Benjamin Bental, Benjamin Eden

Research output: Contribution to journalArticlepeer-review


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 languageEnglish
Pages (from-to)1597-1620
Number of pages24
JournalJournal of Monetary Economics
Issue number8
StatePublished - Nov 2002


  • Business fluctuations
  • Reserve requirements

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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