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The Over‐the‐Counter Theory of the Fed Funds Market: A Primer
Author(s) -
AFONSO GARA,
LAGOS RICARDO
Publication year - 2015
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12216
Subject(s) - open market operation , interest rate , bank reserves , business , monetary economics , distribution (mathematics) , financial system , economics , financial economics , reserve requirement , central bank , monetary policy , mathematics , mathematical analysis
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.