Mapping Change in the Federal Funds Market

14 Pages Posted: 26 Aug 2011

See all articles by Morten L. Bech

Morten L. Bech

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures

Carl T. Bergstrom

University of Washington

Rodney Garratt

Independent

Martin Rosvall

Umea University Deptartment of Physics

Date Written: August 2011

Abstract

We use an information-theoretic approach to describe changes in lending relationships between federal funds market participants around the time of the Lehman Brothers failure. Unlike previous work that conducts maximum-likelihood estimation on undirected networks, our analysis distinguishes between borrowers and lenders and looks for broader lending relationships (multibank lending cycles) that extend beyond the immediate counterparties. We find that significant changes in lending patterns emerge following implementation of the Interest on Reserves policy by the Federal Reserve on October 9, 2008.

Keywords: federal funds market, lending, payment, networks, clustering, map equation

JEL Classification: E42, E51

Suggested Citation

Bech, Morten L. and Bergstrom, Carl T. and Garratt, Rodney and Rosvall, Martin, Mapping Change in the Federal Funds Market (August 2011). FRB of New York Staff Report No. 507, Available at SSRN: https://ssrn.com/abstract=1917412 or http://dx.doi.org/10.2139/ssrn.1917412

Morten L. Bech (Contact Author)

Bank for International Settlements (BIS) - Committee on Payments and Market Infrastructures ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
41612808923 (Phone)

Carl T. Bergstrom

University of Washington ( email )

Seattle, WA 98195
United States

Rodney Garratt

Independent ( email )

Martin Rosvall

Umea University Deptartment of Physics ( email )

Samhallsvetarhuset, Plan 2
Umea University
UmeƄ
Sweden

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