The Impact of the Federal Reserve Bank's Open Market Operations

40 Pages Posted: 4 May 2005

See all articles by Campbell R. Harvey

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Roger D. Huang

University of Notre Dame

Multiple version iconThere are 2 versions of this paper

Date Written: July 10, 2001


The Federal Reserve Bank has the ability to change the money supply and to shape the expectations of market participants through their open market operations. These operations may amount to 20% of the day's volume and are concentrated during the half hour known as "Fed Time." Using previously unavailable data on open market operations from 1982 to 1988, our paper provides the first comprehensive examination of the impact of the Federal Reserve Bank's trading on both fixed income instruments and foreign currencies. Our results detail a dramatic increase in volatility during Fed Time, consistent with market expectations of Fed intervention during this time interval. We find that there is little systematic difference in market impact between reserve-draining and reserve-adding operations. Additionally, Fed Time volatility is, on average, higher on days when open market operations are absent. These results suggest that the markets are potentially confused about the purpose of the open market operations during our sample period. The evidence is also consistent with the Fed operations conveying information which smooths market participants' expectations. A revised version of this paper was published in the Journal of Financial Markets in 2002.

Keywords: Federal Reserve Intervention, Bond market volatility, currency market volality, Reserve-draining operations, Reserve-adding operations, Fed Time

JEL Classification: E52, G14, G18, G21, G28

Suggested Citation

Harvey, Campbell R. and Huang, Roger D., The Impact of the Federal Reserve Bank's Open Market Operations (July 10, 2001). Available at SSRN: or

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
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National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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Roger D. Huang

University of Notre Dame ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6370 (Phone)

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