Near-Money Premiums, Monetary Policy, and the Integration of Money Markets: Lessons from Deregulation

Mark Carlson and David Wheelock

No 2016-077, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: 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 substitutes for other types of funding. The integration of money markets and ability of banks to raise funds using a greater variety of substitutable instruments has implications for monetary policy. We find that, when deregulation reduced money market segmentation, larger open market operations were required to produce a given change in the federal funds rate, but that the pass through of changes in the funds rate to other market rates was also greater.

Keywords: Deregulation; Eurodollars; Market integration; Monetary policy implementation; Money markets; Regulation Q (search for similar items in EconPapers)
JEL-codes: E50 G18 N22 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-06
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.federalreserve.gov/econresdata/feds/2016/files/2016077pap.pdf (application/pdf)

Related works:
Journal Article: Near-money premiums, monetary policy, and the integration of money markets: Lessons from deregulation (2018)
Working Paper: Near-money premiums, monetary policy, and the integration of money markets: lessons from deregulation (2016)
Working Paper: Near-Money Premiums, Monetary Policy, and the Integration of Money Markets: Lessons from Deregulation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-77

DOI: 10.17016/FEDS.2016.077

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