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November 1983, 
Vol. 65, No. 9
Posted 1983-11-01

Lagged and Contemporaneous Reserve Accounting: An Alternative View

Daniel L. Thornton reassesses the primary argument that influenced the Federal Reserve’s decision to return to contemporaneous reserve accounting. In particular, Thornton questions whether the return to contemporaneous will actually result in a significant reduction in the variability of money by restoring the contemporaneous link between depository institutions’ reserves and their transaction deposits. Thornton shows that depository institutions can manage their assets and liabilities in such a way as to weaken this contemporaneous link even under a system of contemporaneous reserve accounting.