The demand for excess liquid assets in Barbados

Author(s): Maynard, Tracy; Moore, Winston (2006)

Created 01 Jan, 2006
Categories Working Papers
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This paper provides a survey of the trends and key determinants of the holdings of excess liquid assets of commercial banks in Barbados between 1975 and 2004. These results show that excess reserves are highly persistent and significantly related to shocks to the currency to deposit ratio, the business cycle, the interest rate and money creation. The model is then employed to generate dynamic projections for excess reserves between 2000 and 2004 to identify whether the build-up in reserves during this period was due to supply-or demand-side factors. These forecasts suggest that with the exception of 2003, most of the expansion in excess liquidity in recent years can be accounted for by demand-side factors.

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