Open market operations and associated movements of the federal funds rate during the week prior to target changes

Yasuo Nishiyama ()
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Yasuo Nishiyama: Woodbury University

Journal of Economics and Finance, 2017, vol. 41, issue 4, No 10, 806-828

Abstract: Abstract This paper estimates the conduct of open market operations during the week prior to a change in the federal funds target rate over 1994–2005. The paper finds evidence that the Federal Reserve conducted either no or partial accommodation most of the time when target changes were plus/minus 25 basis points, whereas it conducted anti-accommodation when target changes were plus/minus 50 basis points or larger. Observed, and well-documented, movements of the federal funds rate—away from the existing target level and toward an expected new target level during the week prior to a target change—are consistent with these open market operations. An exception is the 1994–2001 period during which the Federal Reserve most likely conducted complete accommodation, thereby keeping the federal funds rate at the existing target, when target changes were minus 25 basis points.

Keywords: Open market operations; Accommodation; Federal funds target rate; Reserve demand; Market expectations (search for similar items in EconPapers)
JEL-codes: E51 E58 G21 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s12197-016-9380-8

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