We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors,...

This paper studies the mid-September 2019 stress in U.S. money markets: On September 16 and 17, unsecured and secured funding rates spiked up and, on September 17, the effective federal funds rate broke the ceiling of the Federal Open Market Committee (FOMC) target range. We highlight two...

We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal amount. The model endogenously generates a situation of...

A major lesson of the recent financial crisis is that the ability of banks to withstand liquidity shocks and to provide lending to one another is crucial for financial stability. This paper studies the functioning of the interbank lending market and the optimal policy of a central bank in...

Monetary policy measures taken by the Federal Reserve as a response to the 2007-09 financial crisis and subsequent economic conditions led to a large increase in the level of outstanding reserves. The Federal Open Market Committee (FOMC) has a range of tools to control short-term market rates in...

A major lesson of the recent nancial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs. This paper studies the efficiency of the interbank lending market in allocating funds. We consider two diferent types of liquidity...

A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs. This paper studies the efficiency of the interbank lending market in allocating funds. We consider two different types of liquidity...

A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks that face uncertainty regarding their liquidity needs. This paper examines the efficiency of the interbank lending market in allocating funds and the optimal policy of a central bank in...