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Operational outages and aggregate uncertainty in the federal funds market

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  • Klee, Elizabeth
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    Abstract

    This paper uses operational problems at depository institutions in sending Fedwire payments as a proxy for aggregate uncertainty in end-of-day Fed account positions and then examines funds market behavior on those days. The results suggest that increased uncertainty is associated with a deviation of the federal funds rate from the Federal Open Market Committee's (FOMC's) target rate; the magnitude depends on the severity of the difficulty, the payment volume of the affected participant, and the time of day. The intraday standard deviation of the federal funds rate is also affected by operational outages. Moreover, extensions to Fedwire are more likely on days with possible outages, and discount window borrowing picks up on these days as well.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00100-7
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 34 (2010)
    Issue (Month): 10 (October)
    Pages: 2386-2402

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    Handle: RePEc:eee:jbfina:v:34:y:2010:i:10:p:2386-2402
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

    Keywords: Federal funds market Monetary policy implementation Payment systems Discount window;

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    1. Artuç, Erhan & Demiralp, Selva, 2010. "Discount window borrowing after 2003: The explicit reduction in implicit costs," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 825-833, April.
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    Cited by:

    1. Bech, Morten & Monnet, Cyril, 2016. "A search-based model of the interbank money market and monetary policy implementation," Journal of Economic Theory, Elsevier, vol. 164(C), pages 32-67.
    2. Foote, Elizabeth, 2014. "Information asymmetries and spillover risk in settlement systems," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 179-190.
    3. Kopchak, Seth J., 2011. "The liquidity effect for open market operations," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3292-3299.

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