Search Results
Working Paper
Overnight interbank loan markets
This paper investigates transactions and interest rates on brokered and direct trades in federal funds, Eurodollar transactions, and repurchase agreements, all of which are used by banks in overnight funding. We expand on earlier work on calendar-day effects in these markets, investigating also volumes of funding in recent years. Our data include daily trades in federal funds reported by major brokers and also records of uncollateralized transactions over the wire transfer system operated by the Federal Reserve. We find that the share of the overnight interbank loan market represented by ...
Working Paper
The first line of defense: the discount window during the early stages of the financial crisis
This paper develops a theoretical model of trading in the federal funds market that captures characteristics of discount window borrowing and the federal funds market during the first year of the financial crisis, including the narrowing of the spread between the discount rate and the target rate; the increased incidence of high-rate trading; and the decline in participation in the federal funds market. The model shows that differences in stigma of borrowing from the discount window across banks can cause the federal funds rate to rise, even when the spread between the discount rate and the ...
Working Paper
Do federal funds futures need adjustment for excess returns? a state-dependent approach
This paper utilizes a Markov-switching framework to model excess returns in federal funds futures contracts. This framework identifies a high-volatility state where excess returns are large, positive, and volatile and a low-volatility state where excess returns have a lower volatility and are small in absolute value. Federal funds futures rates require adjustment for excess returns only in the high-volatility state. Intermeeting rate cuts of the federal funds rate target always correspond with the high-volatility regime and can explain much of the variation in excess returns. This paper also ...
Working Paper
Extracting the expected path of monetary policy from futures rates
Federal funds and eurodollar futures contracts are among the most useful instruments for deriving expectations of the future path of monetary policy. However, reading policy expectations from those instruments is complicated by the presence of risk premia. This paper demonstrates how to extract the expected policy path under the assumption that risk premia are constant over time, and under a simple model that allows risk premia to vary. In the latter case, the risk premia are identified under the assumption that policy expectations level out after a long enough horizon. The results provide ...
Speech
Remarks on the role of central bank interactions with financial markets
Remarks at New York University's Stern School of Business, New York City.
Journal Article
Banks, bonds, and the liquidity effect
An "easing" of monetary policy can be characterized by an expansion of bank reserves and a persistent decline in the federal funds rate that, with a considerable lag, induces a pickup in employment, output, and prices. This article presents empirical evidence consistent with this depiction of the dynamic response of the economy to monetary policy actions and develops a theoretical model that exhibits similar dynamic properties. The decline in the federal funds rate is referred to as the "liquidity effect" of an expansionary monetary policy. A key feature of this class of theoretical ...
Journal Article
Federal funds : instrument of Federal Reserve policy
An abstract for this article is not available
Journal Article
Federal funds, tax increase help Owensboro shore up its economy
An unprecedented amount of aid was extended by the Treasury, Fed and FDIC to companies, agencies and individuals. This aid was necessary and, in many cases, will return a profit to taxpayers.
Discussion Paper
Who’s Borrowing in the Fed Funds Market?
The federal funds market plays an important role in the implementation of monetary policy. In our previous post, we examine the lending side of the fed funds market and the decline in total fed funds volume since the onset of the financial crisis. In today’s post, we discuss the borrowing side of this market and the interesting role played by foreign banks.
Working Paper
A federal funds rate equation
This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above trend GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here however indicate that in recent years the Fed has discounted the leading indicator properties of money. In contrast, the bond rate has been a key determinant of the funds rate ...