The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
Regional & Community Outreach connects the Bank to Main Street via structured dialogues and two-way conversations on small business, mortgages, and household credit.
Economic Education improves public knowledge about the Federal Reserve System, monetary policy implementation, and promoting financial stability through the Museum and programs for K-16 students and educators, and the community.
Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate
September 2000Number 110
JEL classification: G21, E52
Authors: Leonardo Bartolini, Giuseppe Bertola, Alessandro Prati
We propose a model of the interbank money market with an explicit role for central bank intervention and periodic reserve requirements, and study the interaction of profit-maximizing banks with a central bank targeting interest rates at high frequency. The model yields predictions on biweekly patterns of the federal funds rate's volatility and on its response to changes in target rates and in intervention procedures, such as those implemented by the Fed in 1994. Theoretical results are consistent with empirical patterns of interest rate volatility in the U.S. market for federal funds.
For a published version of this report, see Leonardo Bartolini, Giuseppe Bertola, and Alessandro Prati, "Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate," Journal of Money, Credit, and Banking 34, no.1 (February 2002): 137-59.