67 posts on "Federal Reserve"
February 24, 2020
Understanding Heterogeneous Agent New Keynesian Models: Insights from a PRANK
To shed light on the macroeconomic consequences of heterogeneity, Acharya and Dogra develop a stylized HANK model that contains key features present in more complicated HANK models.
Posted at 7:00 am in Central Bank, Credit, Federal Reserve, Financial Institutions, Fiscal Policy, Inequality, Macroeconomics, Monetary Policy, Recession, Systemic Risk | Permalink
November 20, 2019
Monetary Policy Transmission and the Size of the Money Market Fund Industry
Assets under management (AUM) of retail money market funds (MMF) have soared during monetary policy tightening episodes, lagging the spread between MMF yields and CD rates.
Posted at 7:00 am in Federal Reserve, Financial Institutions, Financial Intermediation, Monetary Policy | Permalink | Comments (4)
September 4, 2019
The Transmission of Monetary Policy and the Sophistication of Money Market Fund Investors
In December 2015, the Federal Reserve tightened monetary policy for the first time in almost ten years and, over the following three years, it raised interest rates eight more times, increasing the target range for the federal funds rate from 0-25 basis points (bps) to 225-250 bps. To what extent are changes in the fed funds rate transmitted to cash investors, and are there differences in the pass-through between retail and institutional investors? In this post, we describe the impact of recent rate increases on the yield paid by money market funds (MMFs) to their investors and show that the impact varies depending on investors’ sophistication.
Posted at 7:00 am in Federal Reserve, Financial Institutions, Financial Intermediation, Monetary Policy | Permalink | Comments (3)
July 17, 2019
How Do Large Banks Manage Their Cash?
As the aggregate supply of reserves shrinks and large banks implement liquidity regulations, they may follow a variety of liquidity management strategies depending on their business models and the interest rate differences between alternative liquid instruments. For example, the banks may continue to hold large amounts of excess reserves or shift to Treasury or agency securities or shrink their balance sheets. In this post, we provide new evidence on how large banks have managed their cash, which is the largest component of reserves, on a daily basis since the implementation of liquidity regulations.
Posted at 7:00 am in Banks, Federal Reserve, Liquidity, Regulation, Repo, Treasury | Permalink | Comments (2)
July 8, 2019
From Policy Rates to Market Rates—Untangling the U.S. Dollar Funding Market
How do changes in the rate that the Federal Reserve pays on reserves held by depository institutions affect rates in money markets in which the Fed does not participate? Through which channels do changes in the so-called administered rates reach rates in onshore and offshore U.S. dollar money markets? In this post, we answer these questions with the help of an interactive map that guides us through the web of interconnected relationships between the Fed, key market players, and the various instruments in the U.S. dollar funding market, highlighting the linkages across the short-term financial products that form this market.
Posted at 7:00 am in Banks, Central Bank, Fed Funds, Federal Reserve, Monetary Policy, Repo | Permalink | Comments (5)
May 17, 2019
Understanding Cyber Risk: Lessons from a Recent Fed Workshop
Cyber risk poses a major threat to financial stability, yet financial institutions still lack consensus on the definition and terminology around cyber risk, and lack a common framework for confronting these hazards. This impedes efforts to measure and manage such risk, diminishing institutions’ individual and collective readiness to handle system-level cyber threats. In this blog post, we describe the proceedings of a recent workshop, where leading risk managers, academics, and policy makers gathered to discuss proposals for countering cyber risk. This workshop is part of a joint two-phase initiative between the Federal Reserve Banks of Richmond and New York and the Fed’s Board of Governors to harmonize cyber risk identification, classification, and measurement practices.
May 6, 2019
Selected Deposits and the OBFR
In this Liberty Street Economics post, Cipriani and coauthors discuss changes in the calculation of the Overnight Bank Funding Rate (OBFR), the reason for including selected deposits, and the likely impact of the change on the OBFR’s published value.
February 27, 2019
Global Trends in Interest Rates
Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies. In this blog post, we argue that this low-interest-rate environment reflects secular global forces that have lowered real interest rates by about two percentage points over the past forty years. The magnitude of this decline has been nearly the same in all advanced economies, since their real interest rates have converged over this period. The key factors behind this development are an increase in demand for safety and liquidity among investors and a slowdown in global economic growth.
Posted at 7:00 am in Banks, Central Bank, Credit, Expectations, Federal Reserve, Financial Institutions, Financial Markets, Inflation, Liquidity, Macroeconomics, Monetary Policy, Treasury | Permalink | Comments (2)
February 20, 2019
Stressed Outflows and the Supply of Central Bank Reserves
Estimates of Day 1 stressed outflows suggest that reserve balances at the Fed need to be high for banks’ to meet their liquidity needs in a stress situation.
October 15, 2018
Did Banks Subject to LCR Reduce Liquidity Creation?
Banks traditionally provide loans that are funded mostly by deposits and thereby create liquidity, which benefits the economy. However, since the loans are typically long-term and illiquid, whereas the deposits are short-term and liquid, this creation of liquidity entails risk for the bank because of the possibility that depositors may “run” (that is, withdraw their deposits on short notice). To mitigate this risk, regulators implemented the liquidity coverage ratio (LCR) following the financial crisis of 2007-08, mandating banks to hold a buffer of liquid assets. A side effect of the regulation, however, is a reduction in liquidity creation by banks subject to LCR, as we find in our recent paper.
Posted at 7:00 am in Banks, Federal Reserve, Financial Institutions, Financial Intermediation, Liquidity, Regulation | Permalink | Comments (1)
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