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Working Paper
Financial Stress and Equilibrium Dynamics in Money Markets
Interest rate spreads are widely-used indicators of funding pressures and market functioning in money markets. Using weekly data from 2002 to 2015, we analyze money market dynamics in a long-run equilibrium framework where commonly-monitored spreads serve as error correction terms. We find strong evidence for nonlinearities with respect to levels of the spreads. We provide point and interval estimates for spread thresholds that quantify funding pressure points from a long-run perspective. Our results indicate significant asymmetry in the adjustment toward long-run equilibrium. We show that ...
Working Paper
Voluntary Reserve Targets
This paper updates the standard workhorse model of banks' reserve management to include frictions inherent to money markets. We apply the model to study monetary policy implementation through an operating regime involving voluntary reserve targets (VRT). When reserves are abundant, as is the case following the unconventional policies adopted during the recent financial crisis, operating regimes based on reserve requirements may lead to a collapse in interbank trade. We show that, no matter the relative abundance of reserves, VRT encourage market activity and support the central bank's control ...
Working Paper
“Unconventional” Monetary Policy as Conventional Monetary Policy : A Perspective from the U.S. in the 1920s
To implement monetary policy in the 1920s, the Federal Reserve utilized administered interest rates and conducted open market operations in both government securities and private money market securities, sometimes in fairly considerable amounts. We show how the Fed was able to effectively use these tools to influence conditions in money markets, even those in which it was not an active participant. Moreover, our results suggest that the transmission of monetary policy to money markets occurred not just through changing the supply of reserves but importantly through financial market arbitrage ...
Working Paper
Near-Money Premiums, Monetary Policy, and the Integration of Money Markets : Lessons from Deregulation
The 1960s and 1970s witnessed rapid growth in the markets for new money market instruments, such as negotiable certificates of deposit (CDs) and Eurodollar deposits, as banks and investors sought ways around various regulations affecting funding markets. In this paper, we investigate the impacts of the deregulation and integration of the money markets. We find that the pricing and volume of negotiable CDs and Eurodollars issued were influenced by the availability of other short-term safe assets, especially Treasury bills. Banks appear to have issued these money market instruments as ...