Mapping Change in the Federal Funds Market
14 Pages Posted: 26 Aug 2011
Date Written: August 2011
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: Suggested Citation