Trade Dynamics in the Market for Federal Funds

70 Pages Posted: 2 Sep 2014

See all articles by Gara Afonso

Gara Afonso

Federal Reserve Bank of New York

Ricardo Lagos

New York University (NYU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014

Abstract

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.

Suggested Citation

Afonso, Gara and Lagos, Ricardo, Trade Dynamics in the Market for Federal Funds (August 2014). NBER Working Paper No. w20419. Available at SSRN: https://ssrn.com/abstract=2490302

Gara Afonso (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
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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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