Declining required reserves, funds rate volatility, and open market operations
The standard view of the monetary transmission mechanism rests on the central bank's ability to manipulate the overnight interest rate by controlling the reserve supply. In the 1990s, there was a significant decline in the level of reserve balances in the U.S. accompanied at first by an increase in the funds rate volatility. However, following this initial rise, volatility declined. In this paper, we find evidence of a structural break in volatility. We then estimate a tobit model of the major types of temporary open market operations and conclude that there have been changes in the Desk's reaction function that played a major role in controlling volatility.
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- Selva Demiralp & Oscar Jorda, .
"The Announcement Effect: Evidence from Open Market Desk Data,"
Department of Economics
01-04, California Davis - Department of Economics.
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"The Pavlovian Response of Term Rates to Fed Announcements,"
996, University of California, Davis, Department of Economics.
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- Furfine, Craig H., 2000. "Interbank payments and the daily federal funds rate," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 535-553, October.
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Elsevier, vol. 58(1), pages 67-83.
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