Federal Reserve Bank of Minneapolis
Trade Dynamics in the Market for Federal Funds
We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.
Cite this item
Gara M. Afonso & Ricardo Lagos, Trade Dynamics in the Market for Federal Funds, Federal Reserve Bank of Minneapolis, Working Papers 710, 27 Mar 2014.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
Keywords: Fed funds market; Search; Bargaining; Over-the-counter market
This item with handle RePEc:fip:fedmwp:710
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