Working Paper

The Over-the-Counter Theory of the Fed Funds Market: A Primer

Abstract: We present a dynamic over-the-counter model of the fed funds market and use it to study the determination of the fed funds rate, the volume of loans traded, and the intraday evolution of the distribution of reserve balances across banks. We also investigate the implications of changes in the market structure, as well as the effects of central bank policy instruments such as open market operations, the discount window lending rate, and the interest rate on bank reserves.

Keywords: Fed funds market; Search; Bargaining; Over-the-counter market;

JEL Classification: C78; D83; E44; G10;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2014-04-18

Number: 711

Pages: 75 pages