A computational model of banks’ optimal reserve management policy

This paper uses numerical methods to model the demand for excess reserves by a representative bank in a framework that includes many realistic features of the current reserve market structure in the United States. In particular, the model incorporates a 14-day maintenance period and an accurate representation of carryover provisions. We use the model to evaluate the effect of various changes to the operating environment (increased uncertainty, modified penalties) and changes to policy (paying interest on reserves).