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A note on US excess bank reserves and the credit contraction

Khemraj, Tarron (2009): A note on US excess bank reserves and the credit contraction.

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Abstract

This paper reports aggregate bank excess liquidity preference curves for the pre-crisis and crisis periods. It is argued that the flat curve reflects a threshold lending rate at which point banks accumulate reserves passively. Moreover, the expansion of reserves – when the lending rate threshold is binding – does not lead to credit expansion. The latter would require policies that directly increase the demand for loans, particularly by the business sector.

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