How Did the Fed Funds Market Change When Excess Reserves Were Abundant?

McGowan, John; Nosal, Ed

Journal Article

How Did the Fed Funds Market Change When Excess Reserves Were Abundant?

Abstract: Prior to the 2007-2008 financial crisis, excess reserves in the U.S. banking system were scarce. After the financial crisis and up until early 2018, excess reserves were abundant. In this article, the authors document, analyze, and explain the differences in the performance of the federal funds market under the two different excess reserves frameworks.

Keywords: Federal Reserve; EFFR; abundant excess reserves; FBO; Federal Home Loan Banks; FHLB; effective fed funds rate; fed funds market; foreign banking organizations; monetary policy framework;

JEL Classification: E4; E5; G2;