Search Results
Working Paper
Monetary policy implementation with an ample supply of reserves
Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007-2009 financial crisis. We find that the optimal level of reserve supply ...
Journal Article
Challenges in identifying interbank loans
Although interbank lending markets play a key role in the financial system, the lack of disaggregated data often makes the analysis of these markets difficult. To address this problem, recent academic papers focusing on unsecured loans of central bank reserves have employed an algorithm in an effort to identify individual transactions that are federal funds loans. The accuracy of the algorithm, however, is not known. The authors of this study conduct a formal test with U.S. data and find that the rate of false positives produced by one of these algorithms is on average 81 percent; the rate of ...
Journal Article
The Market Events of Mid-September 2019
This article studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked, and on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions’ reserve holdings may have been close to, or lower than, their desired level. Moreover, frictions in the interbank market may have ...
Journal Article
Monetary Policy Implementation with Ample Reserves
The Federal Reserve currently implements its interest rate policy under a framework known as the floor system. In order for the floor system to operate smoothly, there must be sufficient liquidity in the federal funds market. The ongoing goal of quantitative tightening (QT) is to reach the minimal level of market liquidity required to implement monetary policy efficiently and effectively, also known as an ample reserves regime. We briefly discuss changes in the monetary policy framework from the previous corridor system to today’s floor system as well as the circumstances that brought them ...
Working Paper
Monetary Policy Implementation with an Ample Supply of Reserves
Methods of monetary policy implementation continue to change. The level of reserve supply—scarce, abundant, or somewhere in between—has implications for the efficiency and effectiveness of an implementation regime. The money market events of September 2019 highlight the need for an analytical framework to better understand implementation regimes. We discuss major issues relevant to the choice of an implementation regime, using a parsimonious framework and drawing from the experience in the United States since the 2007–09 financial crisis. We find that the optimal level of reserve supply ...
Report
Scarce, Abundant, or Ample? A Time-Varying Model of the Reserve Demand Curve
What level of central bank reserves satiates banks’ demand for liquidity? We estimate the slope of the reserve demand curve in the U.S. over 2010–2024 using a time-varying instrumental-variable approach at the daily frequency. When reserves exceed 12-13 percent of banks’ assets, demand for reserves is satiated and reserves are abundant; below this threshold, the curve’s slope becomes increasingly negative as reserves decline from ample to scarce. We also find that reserve demand has shifted over time, both vertically and horizontally, and identify important drivers of vertical shifts. ...
Speech
Balance Sheet Normalization: Monitoring Reserve Conditions and Understanding Repo Market Pressures
Remarks at 2024 U.S. Treasury Market Conference, Federal Reserve Bank of New York, New York City.
Report
Evaluating the quality of fed funds lending estimates produced from Fedwire payments data
A number of empirical analyses of interbank lending rely on indirect inferences from individual interbank transactions extracted from payments data using algorithms. In this paper, we conduct an evaluation to assess the ability of identifying overnight U.S. fed funds activity from Fedwire payments data. We find evidence that the estimates extracted from the data are statistically significantly correlated with banks' fed funds borrowing as reported on the FRY-9C. We find similar associations for fed funds lending, although the correlations are lower. To be conservative, we believe that the ...
Report
The Market Events of Mid-September 2019
This paper studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked up and, on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two factors that may have contributed to these events. First, reserves may have become scarce for at least some depository institutions, in the sense that these institutions’ reserve holdings may have been close to, or lower than, their desired level. Moreover, frictions in the interbank market may have ...
Working Paper
Monetary Policy Implementation with Ample Reserves
We offer a parsimonious model of the reserve demand to study the tradeoffs associated with various monetary policy implementation frameworks. Prior to the 2007–09 financial crisis, many central banks supplied scarce reserves to execute their interest-rate policies. In response to the crisis, central banks undertook quantitative-easing policies that greatly expanded their balance sheets and, by extension, the amount of reserves they supplied. When the crisis and its aftereffects passed, central banks were in a position to choose a framework that has reserves that are (1) abundant—by ...