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An empirical study of trade dynamics in the interbank market

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Listed author(s):
  • Afonso, Gara M.

    (Federal Reserve Bank of New York)

  • Lagos, Ricardo

    ()

    (New York University)

Abstract

We use minute-by-minute daily transaction-level payments data to document the cross-sectional and time-series behavior of the estimated prices and quantities negotiated by commercial banks in the fed funds market. We study the frequency and volume of trade, the size distribution of loans, the distribution of bilateral fed funds rates, and the intraday dynamics of the reserve balances held by commercial banks. We find evidence of the importance of the liquidity provision achieved by commercial banks that act as de facto intermediaries of fed funds.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 550.

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Length: 40 pages
Date of creation: 2012
Date of revision: 01 Jun 2014
Handle: RePEc:fip:fednsr:550
Note: Previous title: “An Empirical Study of Trade Dynamics in the Fed Funds Market”
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Keywords: monetary policy; federal funds market; federal funds rate; interbank markets;

Find related papers by JEL classification:

  • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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  1. Adam Ashcraft & James Mcandrews & David Skeie, 2011. "Precautionary Reserves and the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 311-348, October.
  2. Gara Afonso & Anna Kovner & Antoinette Schoar, 2010. "Stressed not Frozen: The Fed Funds Market in the Financial Crisis," NBER Working Papers 15806, National Bureau of Economic Research, Inc.
  3. Gara Afonso & Anna Kovner & Antoinette Schoar, 2011. "Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis," Journal of Finance, American Finance Association, vol. 66(4), pages 1109-1139, 08.
  4. William Poole, 1968. "Commercial Bank Reserve Management In A Stochastic Model: Implications For Monetary Policy," Journal of Finance, American Finance Association, vol. 23(5), pages 769-791, December.
  5. Bartolini, Leonardo & Hilton, Spence & McAndrews, James J., 2010. "Settlement delays in the money market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 934-945, May.
  6. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
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Cited by:

  1. Marco van der Leij & Daan in 't Veld & Cars Hommes, 2014. "The Formation of a Core Periphery Structure in Heterogeneous Financial Networks," Tinbergen Institute Discussion Papers 14-098/II, Tinbergen Institute, revised 11 Aug 2016.
  2. Güntner, Jochen H.F., 2015. "The federal funds market, excess reserves, and unconventional monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 225-250.
  3. Julien HUGONNIER & Benjamin LESTER & Pierre-Olivier WEILL, "undated". "Heterogeneity in Decentralized Asset Markets," Swiss Finance Institute Research Paper Series 14-67, Swiss Finance Institute.
  4. Chiu, Jonathan & Monnet, Cyril, 2016. "Relationships in the interbank market," Working Paper Series 5210, Victoria University of Wellington, School of Economics and Finance.
  5. Gofman, Michael, 2017. "Efficiency and stability of a financial architecture with too-interconnected-to-fail institutions," Journal of Financial Economics, Elsevier, vol. 124(1), pages 113-146.
  6. Shen, Ji & Wei, Bin & Yan, Hongjun, 2016. "Financial Intermediation Chains in an OTC Market," MPRA Paper 74925, University Library of Munich, Germany.
  7. Kurmann, André & Rabinovich, Stanislav, 2016. "Dynamic Inefficiency in Decentralized Capital Markets," School of Economics Working Paper Series 2016-1, LeBow College of Business, Drexel University.
  8. Shengxing Zhang & Briana Chang, 2015. "Endogenous Market-making and Formation of Trading Links," 2015 Meeting Papers 1227, Society for Economic Dynamics.

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