Abstract
Reserve requirements are examined in a general equilibrium context. The paper develops a simple general equilibrium model that includes diverse opportunities for investment and a role for financial intermediaries. Two versions of the model are considered. One is a thought experiment in which currency serves purely to satisfy legal reserve requirements; the other is more realistic. The model is used to analyze the comparative static effects of changes in reserve requirements, the effects of changes in other parameters of the economy in the presence of reserve requirements, and some qualitative issues raised by reserve requirements.
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