The Micromechanics of the Federal Funds Market: Implications for Day-of-the-Week Effects in Funds Rate Variability

Paul A. Spindt, J Ronald Hoffmeister

Research output: Contribution to journalArticle

58 Citations (Scopus)

Abstract

The federal funds rate arguably is the most important interest rate in the U.S. capital market because it plays a central role in monetary policy and the term structure. This paper examines the micromechanics of the funds market. We show that in a continuous market with asynchronous trading, regulatory constraints and accounting conventions that focus agents’ attention on discrete time instants have important implications for the dynamics of trading activity and realized market prices. We also exhibit a model of the market that explains observed regularities in the intertemporal behavior of the funds rate.

Original languageEnglish (US)
Pages (from-to)401-416
Number of pages16
JournalJournal of Financial and Quantitative Analysis
Volume23
Issue number4
DOIs
StatePublished - Dec 1 1988
Externally publishedYes

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Day of the week effect
Federal funds market
Capital markets
Discrete-time
Monetary policy
Regularity
Interest rates
Trading activity
Term structure
Federal funds rate
Market price

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

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