Staff Reports
Day-to-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate
September 2000 Number 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.

Available only in PDFPDF36 pages / 2,328 kb

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.

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