Reserve requirements complement monetary policy in small open economies – paper

IMF paper examines use of indirect and direct monetary policy instruments on three Caribbean economies

imf
IMF examines the use of reserve requirements for small open economies’ monetary policy operations
Bruno Sanchez-Andrade Nuño

Central banks in small open economies should consider using reserve requirements as a complement to interest rate policy to help achieve their macroeconomic objectives, a working paper published by the International Monetary Fund has suggested.

Using a restricted vector autoregressive model with exogenous variables, Keyra Primus produces results showing that although a positive shock to policy rates has a direct impact on commercial banks' interest rates, there is a weak transmission to real

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