Interbank Payments and the Daily Federal Funds Rate
22 Pages Posted: 9 Oct 1998
There are 2 versions of this paper
Interbank Payments and the Daily Federal Funds Rate
Date Written: April 24, 1998
Abstract
This paper develops a model of bank reserve management and federal funds rate determination that incorporates the role of interbank payments. In the model, uncertainty in the receipt of payments generates a precautionary demand for bank reserves as banks face both reserve requirements and penalties for overnight overdrafts. Days with higher payment volume are assumed to create more uncertainty in a bank's reserve account that accentuates this precautionary motive. As a result, upward pressure is placed on the equilibrium funds rate. Implications of the model are then estimated using a panel of large banking institutions. Using the parameter estimates, simulations of the model suggest that patterns in payment activity explain many intra-maintenance period movements in both the level and volatility of the federal funds rate.
JEL Classification: G21, E52
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Interest on Reserves and Daylight Credit
By Huberto M. Ennis and John A. Weinberg
-
Unconventional Monetary Policies: An Appraisal
By Claudio E. V. Borio and Piti Disyatat
-
Unconventional Monetary Policies: An Appraisal
By Claudio E. V. Borio and Piti Disyatat
-
Precautionary Reserves and the Interbank Market
By Adam B. Ashcraft, James Mcandrews, ...
-
Precautionary Reserves and the Interbank Market
By Adam B. Ashcraft, James Mcandrews, ...
-
Divorcing Money from Monetary Policy
By Todd Keister, Antoine Martin, ...
-
The Liquidity Effect in the Federal Funds Market: Evidence from Daily Open Market Operations
By Seth B. Carpenter and Selva Demiralp
-
Why Are Banks Holding So Many Excess Reserves?
By Todd Keister and James Mcandrews