Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/189881 
Year of Publication: 
2018
Series/Report no.: 
Staff Report No. 840
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
The landscape of the federal funds market changed drastically in the wake of the Great Recession as large-scale asset purchase programs left depository institutions awash with reserves and new regulations made it more costly for these institutions to lend. As traditional levers for implementing monetary policy became less effective, the Federal Reserve introduced new tools to implement the target range for the federal funds rate, changing this landscape even more. In this paper, we develop a model that is capable of reproducing the main features of the federal funds market, as observed before and after 2008, in a single, unified framework. We use this model to quantitatively evaluate the evolution of interest rates and trading volume in the federal funds market as the supply of aggregate reserves shrinks. We find that these outcomes are highly sensitive to the dynamics of the distribution of reserves across banks.
Subjects: 
monetary policy implementation
federal funds market
over-the-counter markets
JEL: 
E42
E43
E44
E52
E58
Document Type: 
Working Paper

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