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The Microstructure of the Federal Funds Market
Author(s) -
Furfine Craig H.
Publication year - 1999
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/1468-0416.00031
Subject(s) - federal funds , database transaction , business , market microstructure , interbank lending market , financial system , finance , monetary economics , economics , monetary policy , market liquidity , order (exchange) , computer science , programming language
Unique transaction‐level data for nearly every federal funds transaction made during the first quarter of 1998 forms the foundation for this in‐depth exploration of the federal funds market. Unlike previous studies that have relied on aggregate and typically infrequent measures of federal funds market participation, the transaction‐level data exploited here allows a closer look at the microstructure of the market. The paper explores the relationship between bank size and participation in the funds market and discovers that even the largest banks are frequently net sellers of funds. A time‐of‐day pattern is uncovered, as is significant market concentration. Preliminary exploration into trading patterns, or networks, is conducted, and the existence of relationship lending in the interbank market is investigated.