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The relationship between the federal funds rate and the Fed's federal funds rate target: is it open market or open mouth operations?

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  • Thornton, Daniel L.

Abstract

It is widely believed that the Fed controls the funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the federal funds rate. Recently, however, several economists have suggested that open market operations may not be necessary for controlling the funds rate. Rather, they suggest that the Fed controls the funds rate through open mouth operations. The Fed merely indicates its desire to change the funds rate and the market does the rest. This paper investigates the extent to which the close relationship between the federal funds rate and the federal funds rate target is due to open market or open mouth operations. Finding little evidence to support either the open-market or open-mouth hypothesis, the possibility that the Fed adjusts its funds rate target directly in response to changes in the market interest rate is briefly considered. -- Es herrscht die weitverbreitete Ansicht, dass die Fed den Zielzinssatz für Tagesgeld (Funds Rate) steuert, indem sie bei einer Änderung ihres Ziels für den Federal Funds Satz den Druck am Geld-Markt über Offenmarktgeschäfte erhöht oder vermindert. Mehrere Ökonomen äußerten allerdings in letzter Zeit die Ansicht, dass Offenmarktgeschäfte zur Steuerung der Funds Rate nicht erforderlich seien und die Fed vielmehr ihren Leitzins über eine Politik des ?Offenen Mundes? steuern sollte. Dabei würde von der Fed lediglich angedeutet, dass sie eine Änderung des Leitzinses wünsche, und der Rest werde vom Markt selbst erledigt. Diese Arbeit untersucht, inwieweit die enge Wechselbeziehung zwischen der Federal Funds Rate und ihrem Zielwert auf Offenmarkt- bzw. ?Offenmund?- Operationen zurückzuführen ist. Nachdem sich allerdings nur wenig Belege finden, mit denen sich die Offenmarkt- oder die ?Offenmund?-Hypothese untermauern ließe, wird kurz auf die Möglichkeit einer Anpassung des Zielwertes als Reaktion der Fed auf Veränderungen der Marktzinssätze eingegangen.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2000,09.

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Date of creation: 2000
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Handle: RePEc:zbw:bubdp1:4145

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Keywords: Federal funds rate target; monetary policy; open market operations; open mouth operations;

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Cited by:
  1. Cysne, Rubens Penha, 2005. "What Happens After the Central Bank of Brazil Increases the Target Interbank Rate by 1%?," Economics Working Papers (Ensaios Economicos da EPGE) 584, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Bedri Tas, 2004. "Private information of the Fed, predictability of stock returns and expected monetary policy," Money Macro and Finance (MMF) Research Group Conference 2003 100, Money Macro and Finance Research Group.

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