Staff Reports
The Over-the-Counter Theory of the Fed Funds Market: A Primer
December 2013 Number 660
JEL classification: G1, C78, D83, E44

Authors: Gara Afonso and Ricardo Lagos

We present a dynamic over-the-counter model of the fed funds market, and use it to study the determination of the fed funds rate, the volume of loans traded, and the intraday evolution of the distribution of reserve balances across banks. We also investigate the implications of changes in the market structure, as well as the effects of central bank policy instruments such as open market operations, the Discount Window lending rate, and the interest rate on bank reserves.

Available only in PDF pdf   32 pages / 805 kb
Author disclosure statement(s)
For a published version of this report, see Gara Afonso and Ricardo Lagos, "The Over-the-Counter Theory of the Fed Funds Market: A Primer," Journal of Money, Credit and Banking 47, no. 52 (June 2015): 127-54.
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