The Federal Reserve Bank of New York announced the monthly publication of a new research product, Reserve Demand Elasticity (RDE), which measures how much the federal funds rate responds to shifts in reserve supply.
This new tool provides a real-time assessment of the ampleness of reserves in the US banking system. The RDE helps inform policymakers, analysts, and market participants about the demand for reserves in the US banking system to support Federal Reserve balance sheet management and successful monetary policy implementation.
The RDE estimates are calculated using data on federal funds transactions and aggregate reserve balances of depository institutions, collected by the Federal Reserve. The estimate also uses daily data on the interest rate on reserve balances and weekly data on commercial banks’ total assets, publicly available from Federal Reserve Economic Data.
The first RDE estimates indicate that reserves remain abundant. These latest RDE estimates are indistinguishable from zero, meaning that the federal funds rate does not significantly respond to shifts in reserve supply.
