A model of the federal funds market: yesterday, today, and tomorrow
Gara Afonso (),
Roc Armenter () and
Benjamin Lester ()
No 840, Staff Reports from Federal Reserve Bank of New York
The landscape of the federal funds market changed drastically in the wake of the Great Recession as large-scale asset purchase programs left depository institutions awash with reserves and new regulations made it more costly for these institutions to lend. As traditional levers for implementing monetary policy became less effective, the Federal Reserve introduced new tools to implement the target range for the federal funds rate, changing this landscape even more. In this paper, we develop a model that is capable of reproducing the main features of the federal funds market, as observed before and after 2008, in a single, unified framework. We use this model to quantitatively evaluate the evolution of interest rates and trading volume in the federal funds market as the supply of aggregate reserves shrinks. We find that these outcomes are highly sensitive to the dynamics of the distribution of reserves across banks.
Keywords: monetary policy implementation; federal funds market; over-the-counter markets (search for similar items in EconPapers)
JEL-codes: E42 E43 E44 E52 E58 (search for similar items in EconPapers)
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) Track citations by RSS feed
Downloads: (external link)
https://www.newyorkfed.org/research/staff_reports/sr840.html Summary (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr840.pdf Full text (application/pdf)
Working Paper: A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:840
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Amy Farber ().