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Abstract

High levels of excess reserves have been a persistent feature of Jamaica’s commercial bankingsystem within the past two decades. These reserves provide a positive impact in terms of theinstitutions’ ability to respond to liquidity shocks. Notwithstanding this, questions have beenraised as to whether or not such high levels of excess reserves present challenges to the CentralBank in its pursuit of price stability. For example, banks have been able to easily find thewherewithal to extend credit, even when the Central Bank adopts an extremely tight monetarypolicy stance. In this context, this paper examines the trends in excess reserves of commercialbanks in Jamaica during the period 1998 to 2010 and the challenges encountered by the CentralBank in the implementation of monetary policy. The paper estimates the demand for excessreserves using the autoregressive distributed lag ARDL bounds test approach developed byPesaran et al. 2001. The empirical results show that the major determinants of the excessreserves of commercial banks in Jamaica in the long-run and short-run are the reserverequirements, fluctuations in the currency-to-deposit ratio, the deviation of income from trend,the volatility of income, the deficit of the Central Government and the interest rate offered on theBOJ’s 180-day security.



Item Type: MPRA Paper -

Original Title: Excess reserves in Jamaican Commercial Banks: The implications for Monetary Policy-

Language: English-

Keywords: Banks, ARDL modeling, monetary policy, excess reserves-

Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - GeneralE - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E40 - General-





Author: Anderson-Reid, Karen

Source: https://mpra.ub.uni-muenchen.de/43663/







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