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Analysis of Federal Funds Rate Changes and Variance Patterns

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  • Cyree, Ken B
  • Winters, Drew B
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    Abstract

    We analyze a Fed funds rate changes in GARCH-in-mean (GARCH-M) models and find that daily rate change and variance patterns differ with the timing of the rate observation, but that all patterns are generally consistent with optimal reserve account management. We also find that Fed funds daily and intraday variances exhibit trends and persistence, and that daily variance effects differ when using marginal rates versus daily weighted average rates. Furthermore, we find that conditional variances do not provide information about daily or intraday rate changes. Our results provide support for the use of GARCH models for studies on other financial assets.

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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 24 (2001)
    Issue (Month): 3 (Fall)
    Pages: 403-18

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    Handle: RePEc:bla:jfnres:v:24:y:2001:i:3:p:403-18

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    Web page: http://www.southwesternfinance.org/
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    Cited by:
    1. Kotomin, Vladimir & Smith, Stanley D. & Winters, Drew B., 2008. "Preferred habitat for liquidity in international short-term interest rates," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 240-250, February.
    2. Leonardo Bartolini & R. Spence Hilton & Alessandro Prati, 2006. "Money Market Integration," IMF Working Papers 06/207, International Monetary Fund.
    3. Kotomin, Vladimir & Winters, Drew B., 2007. "The impact of the return to lagged reserve requirements on the federal funds market," Journal of Economics and Business, Elsevier, vol. 59(2), pages 111-129.
    4. Brown, Craig R. & Cyree, Ken B. & Griffiths, Mark D. & Winters, Drew B., 2008. "Further analysis of the expectations hypothesis using very short-term rates," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 600-613, April.
    5. Selva Demiralp & Brian Preslopsky & William Whitesell, 2004. "Overnight interbank loan markets," Finance and Economics Discussion Series 2004-29, Board of Governors of the Federal Reserve System (U.S.).
    6. Vladimir Kotomin & Drew Winters, 2006. "Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?," Journal of Financial Services Research, Springer, vol. 29(1), pages 61-82, February.
    7. Ken B. Cyree & Mark D. Griffiths & Drew B. Winters, 2003. "On the pervasive effects of Federal Reserve settlement regulations," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-46.
    8. Palombini, Edgardo, 2003. "Volatility and liquidity in the Italian money market," MPRA Paper 42699, University Library of Munich, Germany.
    9. Fatima Sol Murta, 2007. "The Money Market Daily Session :an UHF-GARCH Model Applied to the Portuguese Case Before and After the Introduction Of the Minimum Reserve System of the Single Monetary Policy," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(3), pages 285-314.

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