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Federal Reserve Bank of New York
Staff Reports
Trade dynamics in the market for federal funds
Gara M. Afonso
Ricardo Lagos
Abstract

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 have met, 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.


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Gara M. Afonso & Ricardo Lagos, Trade dynamics in the market for federal funds, Federal Reserve Bank of New York, Staff Reports 549, 2012.
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Keywords: Federal funds market (United States) ; Econometric models ; Bank loans ; Federal funds rate ; Banks and banking; Central ; Monetary policy ; Over-the-counter markets
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Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

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