The liquidity effect in the federal funds market: evidence from daily open market operations

Seth B. Carpenter and Selva Demiralp

No 2004-61, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use forecast errors made by the Federal Reserve while preparing open market operations to identify a liquidity effect at a daily frequency in the federal funds market. Unlike Hamilton (1997), we find a liquidity effect on many days of the reserve maintenance period besides settlement day. The effect is non-linear; large changes in supply have a measurable effect, but small changes do not. In addition, a higher aggregate level of reserve balances in the banking system is associated with a smaller liquidity effect during the maintenance period but a larger liquidity effect on the last days of the period.

Keywords: Federal funds market (United States); Federal funds rate; Liquidity (Economics) (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: The Liquidity Effect in the Federal Funds Market: Evidence from Daily Open Market Operations (2006)
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