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Conference Paper
Money managers and bank liquidity
Grunewald, Alan E.; Pollock, Alex J. (1985)
Proceedings , Paper 93

Report
Banks' reserve management, transaction costs, and the timing of the Federal Reserve intervention
Bartolini, Leonardo; Prati, Alessandro; Bertola, Giuseppe (2000)
We use daily data on bank reserves and overnight interest rates to document a striking pattern in the high-frequency behavior of the U.S. market for federal funds: depository institutions tend to hold more reserves during the last few days of each "reserve maintenance period," when the opportunity cost of holding reserves is typically highest. We then propose and analyze a model of the federal funds market where uncertain liquidity flows and transaction costs induce banks to delay trading and to bid up interest rates at the end of each maintenance period. In this context, the central bank's ...
Staff Reports , Paper 109

Working Paper
Liquidity demand and welfare in a heterogeneous-agent economy
Wen, Yi (2010)
This paper provides an analytically tractable general-equilibrium model of money demand with micro-foundations. The model is based on the incomplete-market model of Bewley (1980) where money serves as a store of value and provides liquidity to smooth consumption. The model is applied to study the effects of monetary policies. It is shown that heterogeneous liquidity demand can lead to sluggish movements in aggregate prices and positive responses from aggregate output to transitory money injections. However, permanent money growth can be extremely costly: With log utility function and an ...
Working Papers , Paper 2010-009

Report
The Federal Reserve's Commercial Paper Funding Facility
Kimbrough, Karin; Marchioni, Dina; Adrian, Tobias (2010)
The Federal Reserve created the Commercial Paper Funding Facility (CPFF) in the midst of severe disruptions in money markets following the bankruptcy of Lehman Brothers on September 15, 2008. The CPFF finances the purchase of highly rated unsecured and asset-backed commercial paper from eligible issuers via primary dealers. The facility is a liquidity backstop to U.S. issuers of commercial paper, and its creation was part of a range of policy actions undertaken by the Federal Reserve to provide liquidity to the financial system. This paper documents aspects of the financial crisis relevant to ...
Staff Reports , Paper 423

Journal Article
The effectiveness of unconventional monetary policy: the term auction facility
Thornton, Daniel L. (2011-11)
This paper investigates the effectiveness of one of the Federal Reserve?s unconventional monetary policy tools, the term auction facility (TAF). At issue is whether the TAF reduced the spread between the London interbank offered rate (LIBOR) rates and equivalent-term Treasury rates by reducing the liquidity premium embedded in LIBOR rates. This paper suggests that rather than reducing the liquidity premium in LIBOR rates, the announcement of the TAF increased the risk premium in financial and other bond rates because market participants interpreted the announcement by the Fed and other ...
Review , Volume 93 , Issue Nov , Pages 439-454

Journal Article
Trading activity and price transparency in the inflation swap market
Sporn, John; Fleming, Michael J. (2013-05)
The issues of liquidity and price transparency in derivatives markets have taken on greater import given regulatory efforts under way to improve their transparency. To date, the lack of transaction data has impeded the understanding of how the inflation swap and other derivatives markets operate. This article broadens that understanding by using a novel transaction data set to examine trading activity and price transparency in the quickly growing U.S. inflation swap market. The authors find that the market appears reasonably liquid and transparent, despite its over-the-counter nature and ...
Economic Policy Review , Volume 19 , Issue May , Pages 45-57

Journal Article
The Fed's exit strategy for monetary policy
Rudebusch, Glenn D. (2010)
As the financial crisis has receded, the Federal Reserve has scaled back its extraordinary provision of liquidity. Eventually, the Fed will remove all remaining monetary stimulus by raising the federal funds rate and shrinking its balance sheet. The timing of such renormalizations depends crucially on evolving economic conditions.
FRBSF Economic Letter

Conference Paper
Resolving the liquidity effect: commentary
Christiano, Lawrence J. (1995-05)
Proceedings , Issue May , Pages 55-62

Working Paper
Bank Intermediation and Persistent Liquidity Effects in the Presence of a Frictionless Bond Market
Marquis, Milton H.; Einarsson, Tor (2000-11-01)
An “expansionary” monetary policy that increases the growth rate of bank reserves is generally believed by policy makers to induce a “liquidity effect”, or a persistent decline in short-term nominal interest rates, that stimulates real activity. Christiano, et al. (1991,1995,1997) have incorporated this feature of the economy into equilibrium business cycle models by introducing a commercial bank that acquires deposits from households and channels those funds to firms, which use them to fund their working capital expenses. Bank deposits are the only interest-bearing financial asset ...
Working Paper Series , Paper 2000-08

Working Paper
Liquidity, default, taxes and yields on municipal bonds
Zhang, Frank X.; Wu, Chunchi; Wang, Junbo (2005)
We examine the relative yields of Treasuries and municipals using a generalized model that includes liquidity as a state factor. Using a unique transaction dataset, we are able to estimate the liquidity risk of municipals and its effect on bond yields. We find that a substantial portion of the maturity spread between long- and short-maturity municipal bonds is attributable to the liquidity premium. Controlling for the effects of default and liquidity risk, we obtain implicit tax rates very close to the statutory tax rates of high-income individuals and corporations, and these tax rate ...
Finance and Economics Discussion Series , Paper 2005-35

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