Fed Could Use Reserves Payments to Stimulate U.S. Economy

Fed Could Use Reserves Payments to Stimulate U.S. Economy

An academic paper recently published pointed out a few interesting¬†ways for the Federal Reserve to stimulate economic activity. The proposal includes the Federal Reserve lowering the returns banks receive from stashing their money at the central bank. In turn, this would encourage Wall Street to lend more money, even when the economy is weak, and stimulate some economic activity. As Ricardo Reis, the London School of Economics professor who published the proposal states, “When the Central Bank promises a smaller payment, reserves are a less attractive investment, so banks will… move away from reserves and into loans”.

 

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