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Author(s)

Craig Furfine

Predictable patterns in the level and volatility of interbank payments match those found in the daily federal funds rate. This paper develops a structural model of bank reserve management that rationalizes this finding. Implications of the model are then estimated using a panel of large banking institutions. Simulations based upon these empirical estimates suggest that patterns in payment activity can explain much of the observed intra-maintenance period movement in the federal funds rate around its target. Further, volatility in bank payment flows generates funds rate volatility comparable to what is observed.
Date Published: 2000
Citations: Furfine, Craig. 2000. Interbank Payments and the Daily Federal Funds Market. Journal of Monetary Economics. (2)535-553.