Trade Dynamics in the Market for Federal Funds

Gara Afonso; Ricardo Lagos

doi:10.3982/ECTA10586

Trade Dynamics in the Market for Federal Funds

Gara Afonso, Ricardo Lagos

Research output: Contribution to journal › Article › peer-review

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.

Original language	English (US)
Pages (from-to)	263-313
Number of pages	51
Journal	Econometrica
Volume	83
Issue number	1
DOIs	https://doi.org/10.3982/ECTA10586
State	Published - Jan 1 2015

Keywords

Bargaining
Fed funds market
Over-the-counter market
Search

ASJC Scopus subject areas

Economics and Econometrics

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10.3982/ECTA10586

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Trade Dynamics in the Market for Federal Funds

Abstract

Keywords

ASJC Scopus subject areas

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