Institutional Affiliation: Federal Reserve Bank of New York
|Trade Dynamics in the Market for Federal Funds|
with : w20419
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.
Published: Gara Afonso & Ricardo Lagos, 2015. "Trade Dynamics in the Market for Federal Funds," Econometrica, Econometric Society, vol. 83, pages 263-313, 01. citation courtesy of
|Stressed not Frozen: The Fed Funds Market in the Financial Crisis|
with , : w15806
This paper examines the impact of the financial crisis of 2008 on the federal funds market, specifically the bankruptcy of Lehman Brothers. Rather than a complete collapse of lending in the presence of a market wide shock, we see that banks become more restrictive in which counterparties they lend to. After Lehman Brothers, we find that amounts and spreads become more sensitive to borrower bank characteristics. While the market does not contract dramatically, lending rates increase. Further, the market does not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. We examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. As expected, borrowers who access the discount window...
“Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis GARA AFONSO, ANNA KOVNER andANTOINETTE SCHOAR* Article first published online: 19 JUL 2011 DOI: 10.1111/j.1540-6261.2011.01670.x © 2011 The American Finance Association Issue The Journal of Finance The Journal of Finance Volume 66, Issue 4, pages 1109–1139, August 2011 joint with Gara Afonso and Anna Kovner, September 2009, The Journal of Finance, forthcoming.