Econometrica Vol. 83 No. 1 2015

Trade Dynamics in the Market for Federal Funds

Gara Afonso¹; Ricardo Lagos²

¹ Financial Intermediation Function; Federal Reserve Bank of New York; 33 Liberty St. New York NY 10045 U.S.A. · ² Dept. of Economics; New York University; 19 W. 4th St. New York NY 10003 U.S.A.

Abstract

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, 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 policy issues facing modern central banks.

DOI

10.3982/ecta10586

Volume

83

Issue

1

Pages

263-313

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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