Operational problems and aggregate uncertainty in the federal funds market
AbstractThis paper uses operational problems at commercial banks in sending Fedwire payments as a proxy for aggregate uncertainty in end-of-day Fed account positions and then examines funds market behavior on those days. The results suggest that increased uncertainty is associated with a deviation of the federal funds rate from the FOMC’s target rate, the magnitude depending on the severity of the difficulty, the payment volume of the affected participant, and the time of day. Moreover, discount window borrowing picks up on days with operational difficulties. These effects are generally transitory, and markets revert back to previous levels the next day.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-49.
Date of creation: 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-CBA-2007-10-27 (Central Banking)
- NEP-MON-2007-10-27 (Monetary Economics)
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