The topology of the federal funds market

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The topology of the federal funds market

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Morten L. Bech
Enghin Atalay

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Morten L. Bech

Abstract

The recent turmoil in global financial markets underscores the importance of the federal funds market as a means of distributing liquidity throughout the financial system and a tool for implementing monetary policy. In this paper, we explore the network topology of the federal funds market. We find that the network is sparse, exhibits the small-world phenomenon, and is disassortative. In addition, reciprocity loans track the federal funds rate, and centrality measures are useful predictors of the interest rate of a loan.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 354.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:354

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Paper
- Morten L. Bech & Enghin Atalay, 2008. "The topology of the federal funds market," Working Paper Series 986, European Central Bank. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-12-07 (All new papers)
NEP-CBA-2008-12-07 (Central Banking)
NEP-MAC-2008-12-07 (Macroeconomics)
NEP-MON-2008-12-07 (Monetary Economics)

References listed on IDEAS
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Hamilton, James D, 1996. "The Daily Market for Federal Funds," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 26-56, February. [Downloadable!] (restricted)
Other versions:
- James D. Hamilton, 1995. "The Daily Market for Federal Funds," University of California at San Diego, Economics Working Paper Series 95-09, Department of Economics, UC San Diego.
Leonardo Bartolini & Svenja Gudell & Spence Hilton & Krista Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Nov. [Downloadable!]
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Other versions:
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- Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
- 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.). [Downloadable!]
Allen, Linda & Peristiani, Stavros & Saunders, Anthony, 1989. "Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence," Journal of Business, University of Chicago Press, vol. 62(4), pages 501-15, October. [Downloadable!] (restricted)
Allen, Linda & Saunders, Anthony, 1986. "The large-small bank dichotomy in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 10(2), pages 219-230, June. [Downloadable!] (restricted)
Leonardo Bartolini & Spence Hilton & James McAndrews, 2008. "Settlement delays in the money market," Staff Reports 319, Federal Reserve Bank of New York. [Downloadable!]

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