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Trade Dynamics in the Market for Federal Funds

Author

Listed:
  • Ricardo Lagos

    (New York University)

  • Gara Afonso

    (Federal Reserve Bank of New York)

Abstract
We develop a search model of the federal funds market and show that, at each point along the trading session, rates are increasing in the penalty for reserve deficiencies, decreasing in the borrower's bargaining power, and when there are more (less) lenders than borrowers, also decreasing (increasing) in the frequency of meetings. We also study the conditions that shape the time path of the fed funds rate throughout a trading session, and identify the factors that can cause rates to rise or to fall with the time remaining until the end of the trading day.

Suggested Citation

  • Ricardo Lagos & Gara Afonso, 2010. "Trade Dynamics in the Market for Federal Funds," 2010 Meeting Papers 424, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:424
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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