In this paper we investigate the relationship between bank reserves and deposits using a time series approach. The empirical results show that free reserves cointegrate with deposits and the causal nexus runs from deposits both in the short and the long run to free reserves which is contrary to the traditional "multiplier" view. This reflects the fact that the Bank of Spain has not followed a policy of unconditional money stock targeting with strict monetary base control all over the period studied. Moreover, the results cast serious doubts on those empirical studies where reserve aggregates or the stock of money are treated as exogenous variables.

Keywords: Spanish monetary policy, banking system, cointegration, causality.