Date of Award

2010

Document Type

Thesis

Degree Name

Bachelors

Department

Social Sciences

First Advisor

Khemraj, Tarron

Keywords

Excess Reserves, Liquidity, Banking, Recession

Area of Concentration

Economics

Abstract

This thesis examines the varying sources of constraint on growth of the U.S. economy following the financial crisis that started in 2007. The level of excess reserves has spiked to an all-time high and in the process has compromised the effectiveness of the money multiplier to generate growth. By comparing alternative factors affecting the level of excess reserves held by banks, a hypothetical model is created in order to test the significance of supply and demand side factors of liquidity. The loan rate as defined by the prime interest rate, the three month Treasury bill rate, and various new programs set up by the Federal Reserve were all found to be economically significant in the determination of the level of excess reserves. An exploration of the expected outcome of policies and regulations meant to aid in the recovery process will determine what if any action should be taken now and in the future to maintain monetary and economic stability.

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