Ennis’s model implies one such limit
To evolve our very own comprehension of this dilemma, it is good for investigation a style of the latest macroeconomy you to definitely clearly has a bank system that have a good nontrivial balance layer. 5 Regarding the model, lenders makes funds and just have is also borrow from other financial institutions throughout the interbank sector. Discover a main bank you to definitely controls the complete way to obtain financial possessions (reserves along with money) throughout the market although not the fresh new separated (which is, financial institutions see whether to hold supplies or changes him or her into the currency). About design, like in reality, merely banking companies holds reserves.
This aligns well into the noticed real-globe, long-work on matchmaking anywhere between prices and you can financial property one to Lucas described in the 1995 lecture
When supplies is “scarce” or whenever banking companies have no reason to hold extreme supplies (such, because the reserves shell out zero interest), this new model predicts that there could well be virtually no request to possess too much reserves.