Trade Dynamics in the Market for Federal Funds

Gara Afonso and Ricardo Lagos

No 710, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.

Keywords: Fed funds market; Search; Bargaining; Over-the-counter market (search for similar items in EconPapers)
JEL-codes: C78 D83 E44 G10 (search for similar items in EconPapers)
Pages: 75 pages
Date: 2014-03-27
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Trade Dynamics in the Market for Federal Funds (2015)
Working Paper: Trade Dynamics in the Market for Federal Funds (2014)
Working Paper: Trade dynamics in the market for federal funds (2012)
Working Paper: Trade Dynamics in the Market for Federal Funds (2011)
Working Paper: Trade Dynamics in the Market for Federal Funds (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:710

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