Zhuohui Jerry Chen

Zhuohui Jerry Chen

he/him

Ph.D. student in Information Science. Trustworthy LLMs, agents & forecasting. Formerly IMF.

Modeling the Reserve Demand to Facilitate Central Bank Operations

Zhuohui Chen, Nikolaos Kourentzes, Romain Veyrune
IMF Working Paper WP/23/179, September 2023
Presented at the International Symposium on Forecasting, 2023. The model was used in Box 7 of the IMF's 2024 U.S. Article IV report to estimate the Fed's long-run reserve needs.
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Central banks need to know how much reserves the banking system demands at a given interest rate in order to calibrate their operations, especially when moving between scarce- and ample-reserve regimes. This paper models the reserve demand curve, compares parametric (sigmoid) functional forms with nonparametric machine-learning approaches, and uses scenario analysis to show how the estimates can inform the calibration of central bank operations.

The approach was used by IMF staff in the 2024 U.S. Article IV consultation (Box 7, The Longer Term Size of the Fed’s Balance Sheet) to estimate the supply of reserves needed for the Federal Reserve’s ample-reserves regime.

Recommended citation: Chen, Z., Kourentzes, N., and Veyrune, R. (2023). "Modeling the Reserve Demand to Facilitate Central Bank Operations." IMF Working Paper No. 2023/179. International Monetary Fund.