We show that the response of banks' net interest margin (NIM) to monetary policy shocks is state dependent. Following a period of low (high) Federal Funds rates, a contractionary monetary policy shock leads to an increase (decrease) in NIM. Aggregate economic activity exhibits a similar...

This chapter provides an overview of the federal funds market and how the equilibrium federal fund rate is determined. I devote particular attention to comparing and contrasting the federal funds market before and after 2008, since there were several dramatic changes around that time that...

The Federal Reserve's “balance-sheet normalization,” which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in...

The Federal Reserve's "balance-sheet normalization," which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in...

Facing acute strains in the offshore dollar funding markets during the COVID-19 crisis, the Federal Reserve (Fed) implemented measures to provide US dollar liquidity by reinforcing swap arrangements with five major central banks, reactivating them with nine other central banks and establishing a...

I separately identify and estimate the effects of the Federal Reserve's federal funds rate, forward guidance, and large-scale asset purchase (LSAP) policies on the U.S. economy. I extend the high-frequency identification strategy of Bauer and Swanson (2023b) for monetary policy VARs by allowing...

Concerns prevail that a policy rate cut could weaken bank profitability and trigger financial instability. However, banks can sustain relatively high net interest margins with little fluctuation despite a rate cut owing to their dominant position in the deposit market and ability to adjust loan...

Interest coverage covenants, which set a maximum ratio of interest payments to earnings, are among the most popular provisions in firm debt contracts. For affected firms, the amount of additional debt that can be issued without violating these covenants is highly sensitive to interest rates....

How would the policy rule of forecast targeting work for the Federal Reserve? To what extent is the Federal Reserve already practicing forecast targeting? Forecast targeting means selecting a policy rate and policy-rate path so that the forecasts of inflation and employment "look good," in the...

How would the policy rule of forecast targeting work for the Federal Reserve? To what extent is the Federal Reserve already practicing forecast targeting? Forecast targeting means selecting a policy rate and policy-rate path so that the forecasts of inflation and employment “look good,” in...

Eine kurze Geschichte der Geldpolitik -- Die Institutionen der Geldpolitik -- Der geldpolitische Auftrag – multiple Ziele oder klarer Fokus? -- Fokussierte Politik mit herkömmlichen Mitteln -- Ein Alternativmodell: die Stabilisierung des langfristigen Zinses -- Welcher Zins ist fest im...

In recent years, many money and repo rates in the United States have been between zero and 25 basis points. As Fed's liftoff approaches, the question of the level of these rates (and the markets that determine them) becomes increasingly important. The paper discusses (i) whether the Fed can...

In recent years, many money and repo rates in the United States have been between zero and 25 basis points. As Fed's liftoff approaches, the question of the level of these rates (and the markets that determine them) becomes increasingly important. The paper discusses (i) whether the Fed can...

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and...

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and...

How do monetary policy committee (MPC) members form their views about the appropriate interest rate? To what extent do they change their minds during the deliberations in the interest rate meeting? How important is the Chairman? The theoretical literature makes assumptions about these issues. We...

Modern central banks do not only announce the interest rate decision, they also communicate a "story" that explains why they reached the particular decision. When decisions are made by a committee, it could be difficult to find a story that is both consistent with the decision and representative...

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counter-party, and once they have met, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of...

We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they have met, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive...