The Over-the-Counter Theory of the Fed Funds Market: A Primer
32 Pages Posted: 12 Jan 2014
Date Written: December 1, 2013
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: Suggested Citation