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Monetary Policy Implementation and the Federal Funds Rate

Dieter Nautz () and Sandra Schmidt

No 08-025, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper investigates how the implementation of monetary policy affects the dynamics and the volatility of the federal funds rate. Since the early 1980s, the most important changes in the Fed?s conduct of monetary policy refer to the role of the federal funds rate target and the reserve requirement system. We show that the improved communication and transparency regarding the federal funds rate target has significantly increased the Fed?s influence on the federal funds rate since 1994. By contrast, the declining role of required reserves in the U.S. has contributed to higher federal funds rate volatility. Our results suggest that the planned introduction of remunerated reserves will further enhance the controllability of the federal funds rate.

Keywords: Dynamics and Volatility of the Federal Funds Rate; Monetary Policy Implementation; Central Bank Communication; Reserve Requirements (search for similar items in EconPapers)
JEL-codes: C22 E52 E43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2008
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https://www.econstor.eu/bitstream/10419/24720/1/dp08025.pdf (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:7297

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