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A framework for analyzing the daily federal funds market

Scott Timothy Fullwiler, University of Nebraska - Lincoln

Abstract

In recent years there has been a significant amount of research on issues relating to the Federal Reserve's daily implementation of monetary policy in the federal funds market. In the orthodox literature, research has focused on declining reserve requirements, announcement effects, and Japan's recent near-zero interest rate policy. Research within the Post Keynesian school has argued that reserves are a non-discretionary variable and that the line traditionally separating the roles of fiscal and monetary policies is an artificial one. As a result of these developments, both schools separately suggest reconsideration of the daily federal funds market in monetary policy. ^ The purpose of this study is to provide a framework for analyzing the daily federal funds market in light of the issues raised by both schools. The study utilizes, for the first time in a macroeconomic setting, the social fabric matrix (SFM) methodology to develop the framework within the traditions of institutionalism and systems theory. ^ The approach enables holistic analysis of the institutions on both supply and demand sides of the market and of technology's influence on the payments system and declining required reserves. Central to the framework is explaining criteria from laws and regulations that generate purposeful behavior in the institutions. From this, a system dynamics mapping of the daily federal funds market's real-time functioning is developed to visually illustrate sequenced deliveries among institutions. As a result, several important feedback loops that generate regular patterns in the system's daily behavior can be illustrated and described. The implications of these feedback loops for current issues related to the daily federal funds market are discussed. ^

Subject Area

Economics, Finance

Recommended Citation

Fullwiler, Scott Timothy, "A framework for analyzing the daily federal funds market" (2001). ETD collection for University of Nebraska - Lincoln. AAI3022628.
http://digitalcommons.unl.edu/dissertations/AAI3022628

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