Banks’ Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention
IMF Working Papers, October 1, 2000
Source details
- Canonical URL
- Banks’ Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention
Other formats
Bibliographic details
- Authors: Giuseppe Bertola, Leonardo Bartolini, Alessandro Prati
- Published: October 1, 2000
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451857924.001
Summary and key finding
- Authors: Giuseppe Bertola, Leonardo Bartolini, Alessandro Prati
- Date: October 1, 2000
- Core finding: Depository institutions tend to hold more reserves during the last few days of each “reserve maintenance period,” when the opportunity cost of holding reserves is typically highest.
- Empirical basis: Daily data on bank reserves and overnight interest rates documenting high-frequency behavior in the U.S. federal funds market.
- Research output: IMF Working Papers, Working Paper No. 2000/163, Pages: 34, Volume: 2000, Issue: 163, Stock No: WPIEA1632000, ISBN: 9781451857924, ISSN: 1018-5941, DOI: https://doi.org/10.5089/9781451857924.001
Model, mechanism, and analysis
- Model setup:
- Addresses the federal funds market under uncertain liquidity flows and transaction costs.
- Explains timing of trading behavior across reserve maintenance periods.
- Mechanism:
- Transaction costs and uncertainty induce banks to delay trading.
- Delayed trading leads banks to bid up interest rates at the end of each maintenance period.
- Theoretical implication:
- The “value of waiting” combined with settlement timing drives clustered reserve holdings at period-ends despite higher opportunity costs.
Subjects and keywords (as listed)
- Subjects: Asset and liability management, Banking, Central banks, Commercial banks, Financial institutions, Financial markets, Interbank markets, Liquidity, Monetary policy, Reserve positions, Reserve requirements
- Keywords: bank behavior, Commercial banks, excess reserves, Fed intervention, Fed issue reserve, Fed regulation, Interbank markets, interest-rate smoothing, interest-rate-smoothing policy, interest-targeting policy, Liquidity, optimization problem, Reserve positions, Reserve requirements, settlement day, value of waiting, WP
Availability and formats
- Formats noted on landing page: PDF and multiple formats via IMF eLibrary.
- Citation example provided: Giuseppe Bertola, Leonardo Bartolini, and Alessandro Prati. "Banks’ Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention", IMF Working Papers 2000, 163 (2000), accessed 9/20/2026, https://doi.org/10.5089/9781451857924.001
Content summarized from IMF Working Paper: Banks’ Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention (Working Paper No. 2000/163).