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Trade Dynamics in the Market for Federal Funds


Gara Afonso


Federal Reserve Bank of New York

Ricardo Lagos


New York University (NYU) - Department of Economics

February 1, 2012

FRB of New York Staff Report No. 549

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 counter-party, and once they have met, 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.

Number of Pages in PDF File: 96

Keywords: Fed funds market, search, bargaining, over-the-counter

JEL Classification: G1, C78, D83, E44

working papers series


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Date posted: February 25, 2012  

Suggested Citation

Afonso, Gara and Lagos, Ricardo, Trade Dynamics in the Market for Federal Funds (February 1, 2012). FRB of New York Staff Report No. 549. Available at SSRN: http://ssrn.com/abstract=2010609 or http://dx.doi.org/10.2139/ssrn.2010609

Contact Information

Gara Afonso (Contact Author)
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
HOME PAGE: http://nyfedeconomists.org/afonso
Ricardo Lagos
New York University (NYU) - Department of Economics ( email )
269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-998-8937 (Phone)
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