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Forecasting the Treasury's balance at the Fed

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  • Daniel L. Thornton

    (Federal Reserve Bank of St. Louis, USA)

Abstract

As part of the Fed's daily operating procedure, the Federal Reserve Bank of New York, the Board of Governors and the Treasury make a forecast of that day's Treasury balance at the Fed. These forecasts are an integral part of the Fed's daily operating procedure. Errors in these forecasts can generate variation in reserve supply and, consequently, the federal funds rate. This paper evaluates the accuracy of these forecasts. The evidence suggests that each agency's forecast contributes to the optimal, i.e., minimum variance, forecast and that the Trading Desk of the Federal Reserve Bank of New York incorporates information from all three of the agency forecasts in conducting daily open market operations. Moreover, these forecasts encompass the forecast of an economic model. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Daniel L. Thornton, 2004. "Forecasting the Treasury's balance at the Fed," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(5), pages 357-371.
  • Handle: RePEc:jof:jforec:v:23:y:2004:i:5:p:357-371
    DOI: 10.1002/for.920
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    References listed on IDEAS

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    1. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, vol. 87(1), pages 80-97, March.
    2. Daniel L. Thornton, 2001. "Identifying the liquidity effect at the daily frequency," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 59-82.
    3. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    4. Thornton, Daniel L., 2001. "The Federal Reserve's operating procedure, nonborrowed reserves, borrowed reserves and the liquidity effect," Journal of Banking & Finance, Elsevier, vol. 25(9), pages 1717-1739, September.
    5. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-858, May.
    6. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    7. Feinman, Joshua N, 1993. "Estimating the Open Market Desk's Daily Reaction Function," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 231-247, May.
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    Cited by:

    1. Scott T. Fullwiler, 2016. "The Debt Ratio and Sustainable Macroeconomic Policy," World Economic Review, World Economics Association, vol. 2016(7), pages 12-42, July.
    2. Daniel L. Thornton, 2007. "The daily and policy-relevant liquidity effects," Working Papers 2007-001, Federal Reserve Bank of St. Louis.
    3. Daniel L. Thornton, 2010. "The relationship between the daily and policy-relevant liquidity effects," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 73-88.

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