De Grauwe, Paul;
Ji, Yuemei;
(2024)
Fighting Inflation without Massive Transfers to Banks.
Financial and Economic Review
, 23
(4)
pp. 80-101.
10.33893/FER.23.4.80.
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Abstract
The major central banks now operate in a regime of abundant bank reserves. As a result, they can only raise the money market rate by increasing the rate of remuneration of bank reserves. This, in turn, leads to large transfers of central banks’ profits to commercial banks that will become unsustainable and renders the transmission of monetary policies less effective. We propose a two-tier system of reserve requirements that would only remunerate the reserves in excess of the minimum required. This would drastically reduce the giveaways to banks, allow the central banks to maintain their current operating procedures and make monetary policies more effective in fighting inflation.
| Type: | Article |
|---|---|
| Title: | Fighting Inflation without Massive Transfers to Banks |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.33893/FER.23.4.80 |
| Publisher version: | https://doi.org/10.33893/FER.23.4.80 |
| Language: | English |
| Additional information: | © The Author(s), 2025. This is an open access article distributed in accordance with the Creative Commons Attribution Non Commercial (CC BY-NC 4.0) license, which permits others to distribute, remix, adapt, build upon this work non-commercially, and license their derivative works on different terms, provided the original work is properly cited, appropriate credit is given, any changes made indicated, and the use is non-commercial. See: http://creativecommons.org/licenses/by-nc/4.0/. |
| Keywords: | central banks, inflation, bank reserves, remuneration |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of Arts and Humanities |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10204551 |
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