Excess Reserves During the 1930s: Empirical Estimates of the Costs of Converting Unintended Cash Inventory Into Income-Producing Assets

Authors

James T. Lindley, University of Southern MississippiFollow
Clifford B. Sowell, Berea CollegeFollow
W. M.Stewart Mounts, Mercer University at MaconFollow

Document Type

Article

Publication Date

6-1-2001

Abstract

It is often argued that the persistent amounts of excess reserves in the 1934-1941 period were sought either for protective liquidity or as a signal of bank safety to depositors. More recent explanations argue that these excess reserves were unintended inventory due to the high internal adjustment costs of converting reserves to income-producing assets. Our findings support the latter explanation and reveal high internal asset adjustment costs after 1933. Thus, a monetary policy focused on increasing reserves would have been ineffective. A successful monetary policy would be one that increased outside money.

Publication Title

Journal of Economics and Finance

Volume

25

Issue

2

First Page

135

Last Page

148

Recommended Citation

Lindley, J., Sowell, C., Mounts, W. (2001). Excess Reserves During the 1930s: Empirical Estimates of the Costs of Converting Unintended Cash Inventory Into Income-Producing Assets. Journal of Economics and Finance, 25(2), 135-148.
Available at: https://aquila.usm.edu/fac_pubs/21258