Abstract of Fedpoint 45
This is an article critique of “Fedpoi
This is an article critique of “Fedpoint 45 : Reserve Requirements.” The information found within the article is accurate but incomplete and outdated. “Fedpoint 45” covers the uses and implications on monetary policy of reserve requirements. It does not include information on methods used by banks to avoid required reserves or their ineffectiveness. “Fedpoint 45” overstates the importance of reserve requirements and does not include the reasons for the decreasing effectiveness of reserve requirements in the United States today.
“Fedpoint 45” gives well written, easily understood definitions of terms used by the Federal Reserve Board. It does not give information beyond an introductory level. It is overly simplistic in its analysis of the use and importance of reserve requirements. It does not include information on new types of accounts which do not require reserves to be held, clearing balance accounts which banks may use to clear transactions through the Federal Reserve System instead of required reserves, and the use of other more effective tools which the Federal Reserve Board uses to affect monetary policy.
“Fedpoint 45” does not mention the new economic model used by the Federal Reserve Board which includes economic expectations. The use of this model will further erode the use of reserve requirements on monetary policy. This and the difficulties in using reserve requirements to affect monetary policy will eliminate the use of reserve requirements in the future.