The Federal Reserve Bank of New York has introduced a new research product, the Reserve Demand Elasticity (RDE), which will be published monthly. This tool measures the federal funds rate's responsiveness to changes in reserve supply.
According to the New York Fed, "this new tool provides a real-time assessment of the ampleness of reserves in the U.S. banking system." It aims to inform policymakers, analysts, and market participants about reserve demand in the U.S. banking system, supporting Federal Reserve balance sheet management and monetary policy implementation.
The RDE was initially introduced through a Liberty Street Economics blog post in October 2022 and was recently updated in August 2024. Details on its estimation methodology can be found in an earlier Staff Report.
In addition to announcing this product, the New York Fed has published another Liberty Street Economics blog post that gives an overview and discusses recent reserve demand estimates.
The RDE calculations use data from federal funds transactions and aggregate reserve balances from depository institutions collected by the Federal Reserve. It also incorporates daily data on interest rates on reserve balances and weekly data on commercial banks' total assets, sourced from publicly available Federal Reserve Economic Data.
Released today are the first RDE estimates with data as of Friday, October 11, 2024. These indicate that reserves remain abundant as the latest RDE estimates are indistinguishable from zero. This suggests that shifts in reserve supply do not significantly affect the federal funds rate.
Future updates of the RDE will occur around 10:00 A.M. Eastern Time on every third Thursday of each month or following a Federal Open Market Committee blackout period if applicable.
For more information on this measure or to subscribe for regular updates, interested parties can visit the product page provided by the New York Fed.
