Whither the liquidity effect: The impact of Federal Reserve open market operations in recent years
نویسندگان
چکیده
Previous research indicated that the daily liquidity effect, or the change in the federal funds rate associated with an exogenous change in Fed balances, varies with several factors including the day of the maintenance period. In this paper, we examine data from 1998 to 2007, the recent period of increased Federal Reserve transparency before the financial crisis, and find that the liquidity effect stabilized across days of the maintenance period. We conclude that the liquidity effect may be a function of the uncertainty about banks’ end-of-day balances, as well as pure maintenance period effects. Moreover, we find that increased transparency led to a larger liquidity effect on the days prior to an FOMC meeting. Published by Elsevier Inc.
منابع مشابه
Open Market Operations and the Federal Funds Rate
It is commonly believed that the Fed’s ability to control the federal funds rate stems from its ability to alter the supply of liquidity in the overnight market through open market operations. This paper uses daily data compiled by the author from the records of the Trading Desk of the Federal Reserve Bank of New York over the period March 1, 1984, through December 31, 1996: He analyzes the Des...
متن کاملIdentifying the Liquidity Effect at the Daily Frequency
It is widely believed that the Fed controls the overnight federal funds rate, and thereby other short-term interest rates, through open market operations.1 The Fed sells government securities, reducing the supply of reserves relative to demand, when it wants to raise the funds rate. Similarly, it purchases securities when it wants the funds rate to fall. The change in the short-term interest ra...
متن کاملThe Announcement Effect: Evidence from Open Market Desk Data
he textbook view of the monetary transmission mechanism rests on the central bank’s ability to manipulate the overnight interest rate by controlling the reserve supply, followed by a rational-expectations mechanism that ensures that movements in the overnight rate reverberate into longer maturity rates. However, while few dispute the fact that the central bank controls the overnight rate effect...
متن کاملGovernment Intervention and Strategic Trading in the U.S. Treasury Market
We study the impact of outright (i.e., permanent) Open Market Operations (POMOs) by the Federal Reserve Bank of New York (FRBNY) on the microstructure of the secondary U.S. Treasury market. POMOs are trades in U.S. Treasury securities aimed at accomplishing the Federal Reserve’s target level of the federal funds rate. Our analysis is motivated by a parsimonious model of speculative trading in t...
متن کاملThe Fed, Liquidity, and Credit Allocation
The current financial turmoil has generated considerable discussion of liquidity. Moreover, it has been widely reported that the Federal Reserve played a major role in supplying liquidity to financial markets during this distressed time. This article describes two ways in which the Fed has supplied liquidity since late 2007. The first is traditional: The Fed supplies liquidity by providing cred...
متن کامل