SMP: Fed’s Balance Sheet, IOR, and Uncertainty

Es probable que en los próximos meses se comience a discutir si se debe o no reducir el balance de la Reserva Federal. Un breve comentario al respecto para Sound Money Project.

It seems likely that in the coming months monetary policy discussion will start focusing on the problem of shrinking the Fed’s balance sheet. A particular challenge of shrinking the Fed’s balance sheet is that of discontinuing the policy of paying interest on reserves (IOR). While at first sight it might seem that the IOR is too low to have any significance, it indeed has an effect on the demand for reserves by the banks (for an interesting discussion see here.) The policy of IOR increases the demand for reserves, while shrinking the balance sheet would reduce the supply of reserves.

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