Atlantic Economic Journal

, Volume 25, Issue 3, pp 297–306 | Cite as

Borrowed reserves and deposit variation: The risks to monetary policy

  • Michael L. Tindall
  • Roger W. Spencer


A theory of bank reserves is presented with emphasis on the behavior of borrowed reserves, the Federal Reserve's operating instrument. The theory explains the observed nonlinear relationship between borrowing and the spread between the federal funds rate and the discount rate. The theory shows that borrowed reserves are also a function of deposit variation. A shift in bankers' perceptions of deposit variation can cause borrowed reserves demand to shift so that the level of borrowing is not a reliable indicator of the degree of reserve pressure. Since borrowed reserves are used as the Federal Reserve's operating instrument, problems such as these pose substantial risks to the implementation of monetary policy.


Monetary Policy Discount Rate International Economic Public Finance Reliable Indicator 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Dutkowsky, Donald. "The Demand for Borrowed Reserves: A Switching Regression Model,"Journal of Finance, 34, June 1984, pp. 407–24.Google Scholar
  2. Dutkowsky, Donald; Foote, William. "Forecasting Discount Window Borrowing,"International Journal of Forecasting, 4, 1988, pp. 593–603.CrossRefGoogle Scholar
  3. Federal Open Market Committee Meeting. Transcript, Washington, DC: December 13–14, 1988.Google Scholar
  4. The Federal Reserve Discount Window, Board of Governors of the Federal Reserve System, Washington, DC: 1990.Google Scholar
  5. Feinman, Joshua. "Estimating the Open Market Desk's Daily Reaction Function,"Journal of Money, Credit, and Banking, May 1993, pp. 231–47.Google Scholar
  6. Judd, John; Scadding, John. "Comment on What Do Money Market Models Tell Us About How to Implement Monetary Policy?,"Journal of Money, Credit, and Banking, November 1982, pp. 868–87.Google Scholar
  7. Peristiani, Stavros. "The Model Structure of Discount Window Borrowing,"Journal of Money, Credit, and Banking, February 1991, pp. 13–34.Google Scholar
  8. Sternlight, Peter; Edwards, Cheryl; Hilton, R. Spence; Meulendyke, Ann-Marie. "Monetary Policy and Open Market Operations in 1989,"Federal Reserve Bank of New York Quarterly Review, 15, 1990.Google Scholar
  9. Tindall, Michael L.; Spencer, Roger W. "A Monthly Model of Bank Reserve Aggregates,"Atlantic Economic Journal, 15, September 1987, pp. 35–42.Google Scholar
  10. Tinsley, Peter; Farr, Helen; Fries, Gephard; Garret, Bonnie; Von Zur Muehlen, Peter. "Policy Robustness: Specification and Simulation of a Monthly Money Market Model,"Journal of Money, Credit, and Banking, November 1982, pp. 829–56.Google Scholar

Copyright information

© International Atlantic Economic Society 1997

Authors and Affiliations

  • Michael L. Tindall
    • 1
  • Roger W. Spencer
    • 1
  1. 1.New York University and Trinity UniversityUSA

Personalised recommendations