American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Optimal Bank Reserve Remuneration and Capital Control Policy
American Economic Journal: Macroeconomics
vol. 17,
no. 1, January 2025
(pp. 203–44)
Abstract
A central prediction of open economy models with a pecuniary externality due to a collateral constraint is that the unregulated economy overborrows relative to what occurs under optimal policy. A maintained assumption in this literature is that households borrow directly from foreign lenders. This paper shows that if foreign lending is intermediated by domestic banks and the government can pay interest on bank reserves and impose capital controls, the unregulated economy underborrows. The optimal bank reserve policy is countercyclical. By increasing bank reserves during contractions, the government acts as a lender of last resort to collateral-constrained households.Citation
Chi, Chun-Che, Stephanie Schmitt-Grohé, and Martín Uribe. 2025. "Optimal Bank Reserve Remuneration and Capital Control Policy." American Economic Journal: Macroeconomics, 17 (1): 203–44. DOI: 10.1257/mac.20220324Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E58 Central Banks and Their Policies
- F38 International Financial Policy: Financial Transactions Tax; Capital Controls
- F41 Open Economy Macroeconomics
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
There are no comments for this article.
Login to Comment