The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability

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The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability

Author Info

Spindt, Paul A.
Hoffmeister, J. Ronald

Abstract

The federal funds rate arguably is the most important interest rate in the U.S. capital market because it plays a central role in monetary policy and the term structure. This paper examines the micromechanics of the funds market. We show that in a continuous market with asynchronous trading, regulatory constraints and accounting conventions that focus agents' attention on discrete time instants have important implications for the dynamics of trading activity and realized market prices. We also exhibit a model of the market that explains observed regularities in the intertemporal behavior of the funds rate.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 23 (1988)
Issue (Month): 04 (December)
Pages: 401-416
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Handle: RePEc:cup:jfinqa:v:23:y:1988:i:04:p:401-416_01

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- Michael Woodford, 2001. "Monetary Policy in the Information Economy," NBER Working Papers 8674, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Leonardo Bartolini & Giuseppe Bertola & Alessandro Prati, 2000. "Banks' reserve management, transaction costs, and the timing of the Federal Reserve intervention," Staff Reports 109, Federal Reserve Bank of New York. [Downloadable!]
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Other versions:
- Quiro, G.P. & Mendizabal, H.R., 2001. "The Daily Market for Funds in Europe: Has Something Changed with the EMU," Papers 67, Quebec a Montreal - Recherche en gestion.
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Other versions:
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Gabriel Pérez Quirós & Hugo Rodríguez Mendizábal, 2003. "The daily market for funds in Europe: what has changed with the EMU," Banco de EspaÃ±a Working Papers 0313, Banco de España. [Downloadable!]
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- Gabriel Pérez Quir? & Hugo Rodr?uez Mendiz?al, 2003. "The Daily Market for Funds in Europe: What Has Changed with the EMU?," UFAE and IAE Working Papers 559.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
- Quiros, Gabriel Perez & Mendizabal, Hugo Rodriguez, 2006. "The Daily Market for Funds in Europe: What Has Changed with the EMU?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 91-118, February. [Downloadable!] (restricted)
Craig Furfine, 1998. "Interbank payments and the daily federal funds rate," Finance and Economics Discussion Series 1998-31, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Leonardo Bartolini & Giuseppe Bertoli & Alessandro Prati, 2000. "Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention," Econometric Society World Congress 2000 Contributed Papers 0123, Econometric Society. [Downloadable!]
Other versions:
- Alessandro Prati & Leonardo Bartolini & Giuseppe Bertola, 2000. "Banks' Reserve Management, Transaction Costs, and the Timing of Federal Reserve Intervention," IMF Working Papers 00/163, International Monetary Fund.
- Bartolini, Leonardo & Bertola, Giuseppe & Prati, Alessandro, 2001. "Banks' reserve management, transaction costs, and the timing of Federal Reserve intervention," Journal of Banking & Finance, Elsevier, vol. 25(7), pages 1287-1317, July. [Downloadable!] (restricted)
Haydn Davies, . "Averaging in a framework of zero reserve requirements: implications for the operation of monetary policy," Bank of England working papers 84, Bank of England. [Downloadable!]

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