Bank Lending and Interest on Excess Reserves

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dc.contributor.authorHogan, Thomas L.en_US
dc.contributor.orgJames A. Baker III Institute for Public Policyen_US
dc.date.accessioned2018-03-16T17:35:53Zen_US
dc.date.available2018-03-16T17:35:53Zen_US
dc.date.issued2018en_US
dc.description.abstractThis paper analyzes the relationship between bank lending and the Federal Reserve's policy of paying interest on excess reserves (IOER). We argue that the Fed's IOER policy deviates from the standard interest-rate floor framework in ways that influence banks' incentives to hold loans and reserves. Using quarterly data from the start of 2000 through the third quarter of 2017, we find that banks' holdings of loans and reserves are related to GDP growth and employment but are not related to measures of loan demand or economic uncertainty. Accounting for these factors, banks' loan holdings are inversely related to both the rate of IOER and to its premium above short-term market interest rates. We estimate that the Fed's IOER policy accounts for more than half of the post-crisis decline in bank loan allocations.en_US
dc.identifier.citationHogan, Thomas L.. "Bank Lending and Interest on Excess Reserves." (2018) James A. Baker III Institute for Public Policy: <a href="https://www.bakerinstitute.org/research/bank-lending-and-interest-excess-reserves/">https://www.bakerinstitute.org/research/bank-lending-and-interest-excess-reserves/</a>.en_US
dc.identifier.digitalworkingpaper-banklending-020718en_US
dc.identifier.urihttps://hdl.handle.net/1911/99712en_US
dc.publisherJames A. Baker III Institute for Public Policyen_US
dc.relation.urihttps://www.bakerinstitute.org/research/bank-lending-and-interest-excess-reserves/en_US
dc.rightsThis material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and the James A. Baker III Institute for Public Policy.en_US
dc.subjectFederal Reserveen_US
dc.subjectBanksen_US
dc.subjectLendingen_US
dc.subjectReservesen_US
dc.subjectIOERen_US
dc.subjectMonetary policyen_US
dc.titleBank Lending and Interest on Excess Reservesen_US
dc.typeWorking paperen_US
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