Day-To-Day Monetary Policy and the Volatility of the Federal Funds Interest Rate

Author/Editor:

Alessandro Prati ; Giuseppe Bertola ; Leonardo Bartolini

Publication Date:

December 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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 Federal Reserve in 1994. Theoretical results are consistent with empirical patterns of interest rate volatility in the U.S. market for federal funds.

Series:

Working Paper No. 00/206

Subject:

English

Publication Date:

December 1, 2000

ISBN/ISSN:

9781451874594/1018-5941

Stock No:

WPIEA2062000

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

29

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