An implicit rationale for a bank reserve requirement is that a central monetary authority is in a unique position (as "social planner) to impose a "socially superior" outcome to that yielded by a free banking system. We illustrate how this can be true in the context of a simple economy modeled...

One traditional argument in favor of bank reserve requirements holds that since a b ank and its depositors are asymmetrically informed as to the bank's reserve position and its portfolio, the bank will hold too few reserves and too risky a port folio. This being the case, presumably a central...

Limited participation models explain a short-run liquidity effect as arising from the redistribution of income from non-participants in the bond market to participants in the bond market. However, these models also imply that the liquidity effect is smaller the larger is long-run money growth....