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Trade Dynamics in the Market for Federal Funds

Author

Listed:
  • Ricardo Lagos

    (New York University)

  • Gara Afonson

    (Federal Reserve Bank of New York)

Abstract

We develop a model of the market for federal funds that accounts for the two distinctive features of this market: banks have to search for a suitable counterparty, and once they have met, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of several policy-relevant issues.

Suggested Citation

  • Ricardo Lagos & Gara Afonson, 2011. "Trade Dynamics in the Market for Federal Funds," 2011 Meeting Papers 314, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:314
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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