DEFINITION of 'Lagged Reserves'

A method of bank reserve calculation whereby the financial institution is required to keep a certain level of reserves with a Federal Reserve bank. The amount of reserves required is based on the value of all outstanding deposits in the bank's demand deposit accounts from two weeks prior.

BREAKING DOWN 'Lagged Reserves'

Lagged reserve calculation was used from the late 1960s until 1984, when contemporaneous calculations were implemented. But the Fed decided to revert back to the lagged calculation in 1998 in order to obtain more accurate data. This type of reserve calculation is still being used today.

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