The Over-the-Counter Theory of the Fed Funds Market: A Primer

32 Pages Posted: 12 Jan 2014

See all articles by Gara Afonso

Gara Afonso

Federal Reserve Bank of New York

Ricardo Lagos

New York University (NYU) - Department of Economics

Date Written: December 1, 2013

Abstract

We present a dynamic over-the-counter model of the fed funds market, and use it to study the determination of the fed funds rate, the volume of loans traded, and the intraday evolution of the distribution of reserve balances across banks. We also investigate the implications of changes in the market structure, as well as the effects of central bank policy instruments such as open market operations, the Discount Window lending rate, and the interest rate on bank reserves.

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

JEL Classification: G1, C78, D83, E44

Suggested Citation

Afonso, Gara and Lagos, Ricardo, The Over-the-Counter Theory of the Fed Funds Market: A Primer (December 1, 2013). FRB of New York Staff Report No. 660. Available at SSRN: https://ssrn.com/abstract=2377463 or http://dx.doi.org/10.2139/ssrn.2377463

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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