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Is the Conventional View of Discount Window Borrowing Consistent with the Behavior of Weekly Reporting Banks?

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  • Cosimano, Thomas F
  • Sheehan, Richard G

Abstract

Discount window borrowing by weekly reporting banks disaggregated by Federal Reserve district is used to estimate Marvin Goodfriend's (1983) model of borrowed reserves. Little evidence is found to support the argument that a bank's borrowing decision is determined by the spread between the funds rate and the discount rate and by prior bank borrowing. A weekly reporting bank has only a 2.7 percent chance of visiting the discount window during any given maintenance period. This result is consistent with the presence of considerable harassment costs imposed by the discount window officer. Copyright 1994 by MIT Press.

Suggested Citation

  • Cosimano, Thomas F & Sheehan, Richard G, 1994. "Is the Conventional View of Discount Window Borrowing Consistent with the Behavior of Weekly Reporting Banks?," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 761-770, November.
    • Handle: RePEc:tpr:restat:v:76:y:1994:i:4:p:761-70
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    Cited by:

    1. Shaffer, Sherrill, 1998. "Capital Requirements and Rational Discount-Window Borrowing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 849-863, November.
    2. D H Kim, 2003. "Another Look at Yield Spreads: The Role of Liquidity," Economics Discussion Paper Series 0306, Economics, The University of Manchester.
    3. Daniel L. Thornton, 1996. "Identifying the liquidity effect: the case of nonborrowed reserves," Working Papers 1996-002, Federal Reserve Bank of St. Louis.
    4. Dong Heon Kim, 2008. "Another Look at Yield Spreads: The Role of Liquidity," Southern Economic Journal, John Wiley & Sons, vol. 74(4), pages 952-970, April.
    5. Dow, James Jr., 2001. "The Recent Behavior of Adjustment Credit at the Discount Window," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 199-211, April.
    6. Kim, Iljoong & Kim, Inbae, 2007. "Endogenous selection of monetary institutions: With the case of discount windows and bureaucratic discretion," International Review of Law and Economics, Elsevier, vol. 27(3), pages 330-350, September.
    7. D H Kim, 2002. "Another look at yield spreads: The role of liquidity," Centre for Growth and Business Cycle Research Discussion Paper Series 04, Economics, The University of Manchester.
    8. Hanes, Christopher, 2019. "Explaining the appearance of open-mouth operations in the 1990s U.S," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 682-701.
    9. Dutkowsky, Donald H. & McCoskey, Suzanne K., 2001. "Near integration, bank reluctance, and discount window borrowing," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1013-1036, June.

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