That change is ''intended to foster trading in the federal funds market
well within the FOMC's target range,'' the FOMC statement said.
(5) Finally, the FHLBanks are increasingly important participants in the federal funds market
A Model of the Federal Funds Market
: Yesterday, Today, and Tomorrow
In response to the crisis, several new policies were enacted that altered the structure of the federal funds market
in profound ways.
At the cross sectional level, more leveraged banks are more likely to default, larger banks (by asset size) are more leveraged, have lower equity as a share of deposits and rely more heavily on the federal funds market
to finance new loans.
Federal banks are found to generate higher non-interest income and borrow more from federal funds market
. State banks are found to make more customer loans and securitize their loans more.
Our findings strongly suggest that, going forward, a better understanding of the federal funds market
at a disaggregate level depends upon finding data, or improving (and validating) the Furfine algorithm, rather than using the current algorithm's output.
As an example of this mechanism, consider the following crude model of the federal funds market
shown in Figure 3.
Some of the methods described include a classroom federal funds market
experiment, using literature to teach the economics of centrally planned economies, and economics in the film The Third Man.
Similarly, larger institutions appear to be relatively more active than the smaller ones on the supply side of the money market (that is, lending in the federal funds market
and entering into reverse repurchase agreements).
For example, under conventional monetary policy, there was a liquid federal funds market
where banks lent and borrowed reserves privately.
The Federal Open Market Committee establishes the target rate for trading in the Federal funds market
. If they want lower rates they buy securities, the primary dealers deposit the hinds in their commercial bank account, banks have more funds to lend other banks, and the fed funds rate falls.