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Author:Kroeger, Alexander 

Discussion Paper
Is Bitcoin Really Frictionless?
Bitcoin is the most popular virtual currency yet developed. Proponents assert that bitcoin can remove frictions involved in payment and settlement systems by eliminating the need for the financial intermediaries that exist in traditional currencies. In this blog post, we show that while bitcoin transfers themselves are relatively frictionless for the user, there are significant frictions when bitcoins trade in exchange markets resulting in meaningful and persistent price differences across bitcoin exchanges. These exchange-related frictions reduce the incentive of market participants to use bitcoin as a payments alternative.
AUTHORS: Sarkar, Asani; Kroeger, Alexander
DATE: 2016-03-23

Report
The payment system benefits of high reserve balances
The policy measures taken since the financial crisis have greatly expanded the size of the Federal Reserve?s balance sheet and have thus raised the level of aggregate bank reserves as well. Over the same period there has been a significant shift in the timing of payments made over the Federal Reserve?s Fedwire Funds Service toward earlier settlement. This paper documents this timing change and presents regression results suggesting that the increase in overall reserve balances explains the vast majority of this development. The paper also discusses the benefits of high aggregate reserve balances for the robustness of the payment system and the potential implications for policy going forward.
AUTHORS: Kroeger, Alexander; McAndrews, James J.
DATE: 2016-06-01

Report
The pre-crisis monetary policy implementation framework
This article describes the Federal Reserve?s monetary policy operating framework prior to the expansion of the Fed?s balance sheet during the financial crisis. To implement the Fed?s mandate of promoting price stability consistent with full employment, the Federal Open Market Committee (FOMC) sets a target for the overnight rate in the federal funds market, where banks trade reserve balances. In the pre-crisis framework, aggregate reserves were scarce such that relatively small changes in the level of reserves would affect rates in the fed funds market. The New York Fed?s open market trading desk (?the Desk?) forecasted demand for and supply of reserves on a daily basis, and then conducted repo operations with primary dealers to supply enough reserves to maintain the equilibrium rate close to its target. The Desk was successful in achieving this objective; the fed funds rate generally remained close to its target, and any deviations were quickly corrected. However, the pre-crisis operating procedures deployed were more complex and opaque than alternative operating frameworks, required substantial intraday overdrafts from the Fed to meet banks? short-term payment needs, and had to be abandoned once the Fed?s balance sheet expanded in response to the financial crisis. Since the crisis, the Desk has successfully controlled the policy rate using a new framework, suggesting that effective monetary control may be achieved through a different framework.
AUTHORS: Kroeger, Alexander; McGowan, John; Sarkar, Asani
DATE: 2017-03-01

Journal Article
The pre-crisis monetary policy implementation framework
This article describes the Federal Reserve?s (?the Fed?s?) operating framework for monetary policy prior to the expansion of the Fed?s balance sheet during the financial crisis. To implement the Fed?s mandate of promoting price stability consistent with full employment, the Federal Open Market Committee (FOMC) sets a target for the overnight rate in the federal funds market, where banks trade reserve balances. In the pre-crisis framework, aggregate reserves were scarce, so relatively small changes in the level of reserves would affect rates in the fed funds market. The Federal Reserve Bank of New York?s Open Market Trading Desk (?the Desk?) forecasted the demand for and supply of reserves on a daily basis, and then conducted repo operations with primary dealers with the objective of supplying enough reserves to maintain the equilibrium rate close to its target. The Desk was successful in achieving this objective, since the fed funds rate generally did remain close to its target, and any deviations were quickly corrected. However, the pre-crisis operating procedures deployed by the Desk were more complex and opaque than alternative operating frameworks, required substantial intraday overdrafts from the Fed to meet banks? short-term payment needs, and had to be abandoned once the Fed?s balance sheet expanded in response to the financial crisis. Since the crisis, the Desk has successfully controlled the policy rate using a new framework, suggesting that effective monetary control may be achieved through different frameworks.
AUTHORS: Sarkar, Asani; McGowan, John; Kroeger, Alexander
DATE: 2018

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