Day-To-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate

Alessandro Prati, Giuseppe Bertola and Leonardo Bartolini

No 2000/206, IMF Working Papers from International Monetary Fund

Abstract: We propose a model of the interbank money market with an explicit role for central bank intervention and periodic reserve requirements, and study the interaction of profit-maximizing banks with a central bank targeting interest rates at high frequency. The model yields predictions on biweekly patterns of the federal funds rate’s volatility and on its response to changes in target rates and in intervention procedures, such as those implemented by the Federal Reserve in 1994. Theoretical results are consistent with empirical patterns of interest rate volatility in the U.S. market for federal funds.

Keywords: WP; federal funds rate; Monetary policy; volatility; interest rate; Fed intervention; target rate; intervention procedure; percent Fed target change; open market desk; interest rate volatility; Fed operation; Fed behavior; federal funds; Liquidity; Reserve positions; Reserve requirements (search for similar items in EconPapers)
Pages: 29
Date: 2000-12-01
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Citations: View citations in EconPapers (12)

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Journal Article: Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate (2002)
Working Paper: Day-to-day monetary policy and the volatility of the federal funds interest rate (2000)
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