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Author:Klee, Elizabeth C. 

Working Paper
Un-Networking: The Evolution of Networks in the Federal Funds Market

Using a network approach to characterize the evolution of the federal funds market during the Great Recession and financial crisis of 2007-2008, we document that many small federal funds lenders began reducing their lending to larger institutions in the core of the network starting in mid-2007. But an abrupt change occurred in the fall of 2008, when small lenders left the federal funds market en masse and those that remained lent smaller amounts, less frequently. We then test whether changes in lending patterns within key components of the network were associated with increases in ...
Finance and Economics Discussion Series , Paper 2015-55

Journal Article
Profits and balance sheet developments at U.S. commercial banks in 2004

U.S. commercial banks continued to be highly profitable in 2004. Return on assets and return on equity declined moderately, but the economy's continued expansion and supportive financial conditions helped keep bank profits in the elevated range that has prevailed since the mid-1990s. Profits were trimmed a bit by a narrowing of banks' net interest margins as the yield curve flattened and competition put pressure on loan spreads. In addition, gains in non-interest income were less pronounced than in 2003, and non-interest expenses increased. However, the continued improvement in the overall ...
Federal Reserve Bulletin , Volume 91 , Issue Spr

Working Paper
Expectations about the Federal Reserve's balance sheet and the term structure of interest rates

This paper provides a systematic assessment of the effect of the Federal Reserve's asset purchase programs on Treasury yields, with particular emphasis on the role of market expectations about the evolution of the Federal Reserve's balance sheet and of interest rates on the impact of the programs. We construct measures of such market expectations based on Blue Chip survey forecasts, Congressional Budget Office projections, and information from formal FOMC communications. Those measures are combined with a no-arbitrage term structure model, in which yields are driven by current and expected ...
Finance and Economics Discussion Series , Paper 2012-57

Working Paper
Take it to the Limit : The Debt Ceiling and Treasury Yields

We use the 2011 and 2013 U.S. debt limit impasses to examine the extent to which investors react to a heightened possibility of financial contagion. To do so, we first model the response of yields on government debt to a potential debt limit "breach." We then demonstrate empirically that yields on all Treasuries rose by 4 to 8 basis points during both impasses, while excess yields on bills at risk of delayed principal payments were significantly larger in 2013. Perhaps counterintuitively, our model suggests market participants placed a lower probability on financial contagion resulting from ...
Finance and Economics Discussion Series , Paper 2017-052

Working Paper
The Federal Reserve's Tools for Policy Normalization in a Preferred Habitat Model of Financial Markets

This paper develops a model of the financial system that provides a framework for analyzing monetary policy implementation in a world with multiple Federal Reserve liabilities and a superabundant supply of reserves. The analysis demonstrates that the Federal Reserve's suite of policy tools including interest on excess reserves (IOER), overnight and term reverse repurchase agreements, and term deposits should allow the Federal Reserve to raise the level of short-term interest rates at the appropriate time. The model also demonstrates that these tools could be used in different ways to achieve ...
Finance and Economics Discussion Series , Paper 2014-83

Report
The mechanics of a graceful exit: interest on reserves and segmentation in the federal funds market

To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from the target rate set by the Federal Open Market Committee. In response, the Federal Reserve revised its operational framework for implementing monetary policy and began to pay interest on reserve balances in an attempt to provide a floor for the federal funds rate. Nevertheless, ...
Staff Reports , Paper 416

Working Paper
Treasury Safety, Liquidity, and Money Premium Dynamics: Evidence from Recent Debt Limit Impasses

Treasury securities normally possess unparalleled safety and liquidity and, consequently, carry a money premium. We use recent debt limit impasses, which temporarily increased the riskiness of Treasuries, to investigate the relationship between the money premium, safety, and liquidity. Our results shed light on Treasury market dynamics specifically, and debt more generally. We first establish that a decline in the perceived safety of Treasuries erodes the money premium at all times. Meanwhile, changes in liquidity only affected the money premium during the impasses. Next, we show that ...
Finance and Economics Discussion Series , Paper 2020-008

Working Paper
A study of U.S. monetary policy implementation: demand for reserves on a period average basis

This paper provides new estimates of banks' demand for excess reserve balances on a period average basis. Consistent with theoretical work, we find that the demand for excess depends critically on uncertainty of flows in and out of reserve accounts. We also document the variability of demand for excess reserve balances by institution size, evaluate different models for forecasting demand for excess on a period average basis, and report the forecasting performance of each of these models. Finally, we present analysis of the period of financial turmoil seen over the year since August, 2007.
Finance and Economics Discussion Series , Paper 2009-22

Working Paper
The mechanics of a graceful exit: interest on reserves and segmentation in the federal funds market

To combat the financial crisis that intensified in the fall of 2008, the Federal Reserve injected a substantial amount of liquidity into the banking system. The resulting increase in reserve balances exerted downward price pressure in the federal funds market, and the effective federal funds rate began to deviate from the target rate set by the Federal Open Market Committee. In response, the Federal Reserve revised its operational framework for implementing monetary policy and began to pay interest on reserve balances in an attempt to provide a floor for the federal funds rate. Nevertheless, ...
Finance and Economics Discussion Series , Paper 2010-07

Working Paper
Operational problems and aggregate uncertainty in the federal funds market

This paper uses operational problems at commercial banks in sending Fedwire payments as a proxy for aggregate uncertainty in end-of-day Fed account positions and then examines funds market behavior on those days. The results suggest that increased uncertainty is associated with a deviation of the federal funds rate from the FOMC?s target rate, the magnitude depending on the severity of the difficulty, the payment volume of the affected participant, and the time of day. Moreover, discount window borrowing picks up on days with operational difficulties. These effects are generally transitory, ...
Finance and Economics Discussion Series , Paper 2007-49

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