Working Paper: NBER ID: w20419
Authors: Gara Afonso; Ricardo Lagos
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.
Keywords: No keywords provided
JEL Codes: E4; E43; E5; E52; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intermediation (G00) | fed funds rate (E52) |
| bank behavior (G21) | trade volume (F10) |
| market structure (D49) | trading delays (F16) |
| fed funds rate (E52) | efficient reallocation (D61) |
| intermediation (G00) | trade volume (F10) |
| intermediation (G00) | trading delays (F16) |