Falling Reserve Balances and the Federal Funds Rate

Bennett, Paul B.; Hilton, Spence

doi:10.2139/ssrn.998875

Download This Paper

Open PDF in Browser

Add Paper to My Library

Falling Reserve Balances and the Federal Funds Rate

Current Issues in Economics and Finance Vol. 3, No. 5, April 1997

6 Pages Posted: 11 Jul 2007

See all articles by Paul B. Bennett

Spence Hilton

Federal Reserve Bank of New York - Research Group; National Bureau of Economic Research (NBER)

Date Written: April 1997

Abstract

The growth of 'sweeps' - a banking practice in which depository institutions shift funds out of customer accounts subject to reserve requirements - has reduced the required balances held by banks in their accounts at the Federal Reserve. This development could lead to greater volatility in the federal funds rate as banks try to manage their accounts with very low balances. An analysis of the evidence suggests that the volatility of the funds rate is rising slightly, but not enough to disrupt the federal funds market or affect the implementation of monetary policy.

Keywords: reserve requirements, sweep accounts

JEL Classification: E5

Suggested Citation: Suggested Citation

Bennett, Paul B. and Hilton, Spence, Falling Reserve Balances and the Federal Funds Rate (April 1997). Current Issues in Economics and Finance Vol. 3, No. 5, April 1997, Available at SSRN: https://ssrn.com/abstract=998875 or http://dx.doi.org/10.2139/ssrn.998875