IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

The Daily Market for Federal Funds

Listed author(s):
  • Hamilton, James D

This paper reports overwhelming evidence against the hypothesis that the federal funds rate follows a martingale over the two-week reserve maintenance period, establishing that banks do not regard reserves held on different days of the week to be perfect substitutes. A theoretical model of the federal funds market is proposed that could account for these empirical regularities as the result of line limits, transaction costs, and weekend accounting conventions. The paper concludes that such transaction costs lie at the heart of the liquidity effect that enables the Federal Reserve to change the interest rate on a daily basis. Copyright 1996 by University of Chicago Press.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dx.doi.org/10.1086/262016
File Function: full text
Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 104 (1996)
Issue (Month): 1 (February)
Pages: 26-56

as
in new window

Handle: RePEc:ucp:jpolec:v:104:y:1996:i:1:p:26-56
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Marvin Goodfriend & William Whelpley, 1986. "Federal funds : instrument of Federal Reserve policy," Economic Review, Federal Reserve Bank of Richmond, issue Sep, pages 3-11.
  2. Lasser, Dennis J., 1992. "The effect of contemporaneous reserve accounting on the market for federal funds," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1047-1056, December.
  3. Campbell, John Y, 1987. "Money Announcements, the Demand for Bank Reserves, and the Behavior of the Federal Funds Rate within the Statement Week," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(1), pages 56-67, February.
  4. Marvin Goodfriend, 1982. "A model of money stock determination with loan demand and a banking system balance sheet constraint," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 3-16.
  5. Allen, Linda & Saunders, Anthony, 1992. "Bank window dressing: Theory and evidence," Journal of Banking & Finance, Elsevier, vol. 16(3), pages 585-623, June.
  6. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
  7. Peristiani, Stavros, 1991. "The Model Structure of Discount Window Borrowing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(1), pages 13-34, February.
  8. Gordon, David B & Leeper, Eric M, 1994. "The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1228-1247, December.
  9. 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.
  10. Leeper, Eric M. & Gordon, David B., 1992. "In search of the liquidity effect," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 341-369, June.
  11. Balduzzi, Pierluigi & Bertola, Giuseppe & Foresi, Silverio, 1997. "A model of target changes and the term structure of interest rates," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 223-249, July.
  12. Allen, Linda & Peristiani, Stavros & Saunders, Anthony, 1989. "Bank Size, Collateral, and Net Purchase Behavior in the Federal Funds Market: Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 62(4), pages 501-515, October.
  13. Robert J. Shiller & John Y. Campbell & Kermit L. Schoenholtz, 1983. "Forward Rates and Future Policy: Interpreting the Term Structure of Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 173-224.
  14. Evanoff, Douglas D., 1990. "An empirical examination of bank reserve management behavior," Journal of Banking & Finance, Elsevier, vol. 14(1), pages 131-143, March.
  15. Dutkowsky, Donald H, 1984. " The Demand for Borrowed Reserves: A Switching Regression Model," Journal of Finance, American Finance Association, vol. 39(2), pages 407-424, June.
  16. Robert B. Avery & Myron L. Kwast, 1993. "Money and interest rates under a reserves operating target," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 24-34.
  17. Kopecky, Kenneth J. & Tucker, Alan L., 1993. "Interest rate smoothness and the nonsettling-day behavior of banks," Journal of Economics and Business, Elsevier, vol. 45(3-4), pages 297-314.
  18. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 463-497, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:v:104:y:1996:i:1:p:26-56. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.