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Evaluating the quality of fed funds lending estimates produced from Fedwire payments data

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  • Anna Kovner
  • David Skeie

Abstract

A number of empirical analyses of interbank lending rely on indirect inferences from individual interbank transactions extracted from payments data using algorithms. In this paper, we conduct an evaluation to assess the ability of identifying overnight U.S. fed funds activity from Fedwire payments data. We find evidence that the estimates extracted from the data are statistically significantly correlated with banks' fed funds borrowing as reported on the FRY-9C. We find similar associations for fed funds lending, although the correlations are lower. To be conservative, we believe that the estimates are best interpreted as measures of overnight interbank activity rather than fed funds activity specifically. We also compare the estimates provided by Armantier and Copeland (2012) to the Y-9C fed funds amounts.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 629.

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Date of creation: 2013
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Handle: RePEc:fip:fednsr:629

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Keywords: Federal funds market (United States) ; Interbank market ; Fedwire;

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References

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  1. Jason Allen & Ali Hortaçsu & Jakub Kastl, 2011. "Analyzing Default Risk and Liquidity Demand during a Financial Crisis: The Case of Canada," Working Papers 11-17, Bank of Canada.
  2. Basil Guggenheim & Sébastien Philippe Kraenzlin & Silvio Schumacher, 2011. "Exploring an uncharted market: Evidence on the unsecured Swiss franc money market," Working Papers 2011-05, Swiss National Bank.
  3. Gara Afonso & Anna Kovner & Antoinette Schoar, 2010. "Stressed, not frozen: the Federal Funds market in the financial crisis," Staff Reports 437, Federal Reserve Bank of New York.
  4. Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, 08.
  5. Scott Hendry & Nadja Kamhi, 2007. "Uncollateralized Overnight Loans Settled in LVTS," Working Papers 07-11, Bank of Canada.
  6. Viral V. Acharya & Ouarda Merrouche, 2010. "Precautionary Hoarding of Liquidity and Inter-Bank Markets: Evidence from the Sub-prime Crisis," NBER Working Papers 16395, National Bureau of Economic Research, Inc.
  7. Olivier Armantier & Adam Copeland, 2012. "Assessing the quality of “Furfine-based” algorithms," Staff Reports 575, Federal Reserve Bank of New York.
  8. Stephen Quinn & William Roberds, 2010. "How Amsterdam got fiat money," Working Paper 2010-17, Federal Reserve Bank of Atlanta.
  9. Furfine, Craig H, 2001. "Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market," The Journal of Business, University of Chicago Press, vol. 74(1), pages 33-57, January.
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