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Forecasting the Treasury's balance at the Fed

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  • Daniel L. Thornton

Abstract

As part of the Fed's daily operating procedure, the Federal Reserve Bank of New York, the Board of Governors, and the Treasury make a forecast of that day's Treasury balance at the Fed. These forecasts are an integral part of the Fed's daily operating procedure. Errors in these forecasts can generate variation in reserve supply and, consequently, the federal funds rate. This paper evaluates the accuracy of these forecasts. The evidence suggests that each agency's forecast contributes to the optimal, i.e., minimum variance, forecast and that the Trading Desk of the Federal Reserve Bank of New York incorporates information from all three of the agency forecasts in conducting daily open market operations. Moreover, these forecasts encompass the forecast of an economic model.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2001-004.

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Date of creation: 2003
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Handle: RePEc:fip:fedlwp:2001-004

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Keywords: Open market operations ; Federal funds rate ; Forecasting;

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  1. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March.
  2. Thornton, Daniel L., 2001. "The Federal Reserve's operating procedure, nonborrowed reserves, borrowed reserves and the liquidity effect," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1717-1739, September.
  3. Feinman, Joshua N, 1993. "Estimating the Open Market Desk's Daily Reaction Function," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 231-47, May.
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