Reserve Demand Elasticity
a.k.a. RDE
How sensitive short-term interest rates are to changes in the amount of reserves banks hold, a gauge of whether reserves are getting scarce.
Reserve demand elasticity (RDE) asks: if reserves in the banking system shrink a little, how much do short-term borrowing rates jump? When reserves are plentiful, a small change barely moves rates; the curve is flat. As reserves get scarce, the same change can make rates leap.
The New York Fed tracks an estimate of this to judge how far quantitative tightening can go. Rising sensitivity is a warning that the system is moving from an ample toward a scarce reserves regime.
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