Reserves vs. federal funds operating monetary procedures: A general equilibrium analysis

The recently adopted reserves-operating target is compared to the old regime. It is found that: (a) the structure of the monetary system is changed, (b) success of the new regime hinges on understanding of the role of borrowed reserves, (c) a major reason for the recent violent gyrations in monetary aggregates—as well as in interest rates—is the Federal Reserve's formula for forecasting borrowed reserves.