Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention

Leonardo Bartolini, Giuseppe Bertoli and Alessandro Prati
Additional contact information
Giuseppe Bertoli: European University Institute
Authors registered in the RePEc Author Service: Giuseppe Bertola

No 123, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: 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 transactions 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 interest-rate-smoothing policy causes a high supply of liquid funds to be associated with high interest rates around reserve settlement days.

Date: 2000-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Downloads: (external link)
http://fmwww.bc.edu/RePEc/es2000/0123.pdf main text (application/pdf)

Related works:
Journal Article: Banks' reserve management, transaction costs, and the timing of Federal Reserve intervention (2001)
Working Paper: Banks' reserve management, transaction costs, and the timing of the Federal Reserve intervention (2000)
Working Paper: Banks’ Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecm:wc2000:0123

Access Statistics for this paper

More papers in Econometric Society World Congress 2000 Contributed Papers from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().