New York Fed Launches Reserve Demand Elasticity Measure

NEW YORK-The Federal Reserve Bank of New York today 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 U.S. banking system. The RDE helps inform policymakers, analysts, and market participants about the demand for reserves in the U.S. banking system to support Federal Reserve balance sheet management and successful monetary policy implementation.

The RDE was first introduced through a Liberty Street Economicsblog post in October 2022 and recently updated in a blog post in August 2024. The methodology used to estimate the RDE is described in detail in an earlier Staff Report.

In conjunction with the new product, the New York Fed published a Liberty Street Economics blog post providing an overview of the new product and discussing the latest estimates of reserve demand.

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, released today, include data as of Friday, October 11, 2024 and 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.

The RDE will be updated around 10:00 A.M. Eastern Time on the third Thursday of each month, or on the first business day following a Federal Open Market Committee blackout period if the third Thursday of the month falls within the blackout period.

For more information on the RDE, and to subscribe to receive regular updates, visit the product page.