Board of Governors of the Federal Reserve System

Figure 1. The Fed’s Ample-Reserves Regime

Figure 1 illustrates the Fed's ample-reserves regime by plotting banks' demand curve and a shaded region over which the Fed's supply curve must be located to be in an ample-reserves implementation regime. The y axis denotes the level of interest rates; the x axis denotes the quantity of reserve balances. The demand curve is a single line drawn downward sloping. The y intercept of the demand curve is at the highest interest rate plotted, the Primary Credit Rate. The line then moves down steeply, so that one portion of the curve is steeply downward sloping. The line eventually levels off and becomes nearly flat (that is, has a slope of zero), so that a second portion of the curve, the right-most section, is entirely nearly flat. The point at which the demand curve levels off is above zero on the y axis. This second portion of the demand curve corresponds with a fully shaded region on the chart. On the y-axis there are two more labels: "IOR" at a point well below the Primary Credit Rate, and "ON RRP" at a point below, but close to IOR. These two labels straddle the flat portion of the demand curve.

The figure also includes two vertical lines indicating two different amounts of reserve supply. Each line intersects the demand curve on its nearly flat portion. Line “A” intersects the demand curve a little bit to the left of where the demand curve becomes nearly flat. Line “B” is far to the right on the demand curve, where it is clearly flatter. There is a grey region that extends from “A” to the rightmost side of the figure.

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Figure 2. Selected Fed Non-Reserve Liabilitie

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Figure 3. Reserve Supply is drained by an expansion of autonomous factors

Figure 3 depicts a leftward (decreasing) supply curve shift. It starts with Figure 1. It adds two vertical lines in the grey region. The first vertical line is labelled “S0” and represents the starting supply curve. The second vertical line is labelled “S1” and is positioned to the left of the starting supply curve. There is an arrow pointing from S0 to S1.

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Figure 4. Increase in Demand for Reserves in an Ample-Reserves Regime

Figure 4 depicts a rightward (increasing) demand curve shift. It starts with Figure 1. It labels the original demand curve from figure 1 “D0.” This represents the starting demand curve. It includes a second demand curve that is drawn with a parallel shift to the right of D0 and labels it “D1.” There is an arrow pointing from D0 to D1. Note that the y intercept of the demand curve is anchored at the primary credit rate and the flat portion of the demand curve continues to be near IOR.

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