Ample reserves can yield highest welfare – BoE paper
Central banks face trade-off between financial stability and resource misallocation, author says
Central banks are likely to generate the highest welfare by supplying ample reserves, research published by the Bank of England finds.
Many monetary authorities, including the BoE, have adopted ample reserve regimes, where the central bank meets demand for reserves but avoids supplying large amounts of excess reserves.
William Pagel, author of the staff working paper, notes that there are trade-offs in setting the size of the balance sheet. Some economists argue that providing plenty of liquidity
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