Day-of-the-week effects in federal funds rates: Further empirical findings

Griffiths, Mark D.; Winters, Drew B.

doi:10.1016/0378-4266(94)00118-m

“…In Table 1, standard deviation and (outlier-robust) mean absolute median difference statistics indicate that the volatility of interest rates is indeed significantly higher on settlement days than in the rest of each maintenance period. The evidence is similar across all the subsamples we investigated, 6 and consistent with previous findings (Spindt and Hoffmeister, 1988, Griffiths and Winters, 1995, and Bartolini et al, 1999. We also explored the settlement-vs.-non-settlement behavior of the rates' skewness.…”

supporting

confidence: 91%

Banks’ reserve management, transaction costs, and the timing of Federal Reserve intervention

Bartolini

¹

,

Bertola

²

,

Prati

³

2001

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in www.econstor.euWe thank seminar participants at various institutions for helpful comments; S. Hilton, S. We use daily data on bank reserves and overnight interest rates to document a striking pattern in the high-frequency behavior of the U.S. market for federal funds: depository institutions tend to hold more reserves during the last few days of each "reserve maintenance period," when the opportunity cost of holding reserves is typically highest. We then propose and analyze a model of the federal funds market where uncertain liquidity flows and transaction costs induce banks to delay trading and to bid up interest rates at the end of each maintenance period. In this context, the central bank's interest-rate-smoothing policy causes a high supply of liquid funds to be associated with high interest rates around reserve settlement days.JEL G21, E52.

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“…2 Thus, Figure 1 plots the average daily volatility in the fed funds rate relative to quarter-ends across our sample period. Although some events other than quarter-ends such as biweekly settlements with the Fed [see Griffiths and Winters (1995)] clearly influence the behavior of the series, regular volatility spikes around the last day of the quarter are quite apparent.…”

Section: Daily Rate Standard Deviations and The Direction Of Quarter-mentioning

confidence: 99%

“…Now, the remaining issue is the daily behavior of the fed funds rate in the presence of liquidity effects and under operating procedures where the Fed targets the funds rate. Griffiths and Winters (1995) use the regulations for bank settlement with the Federal Reserve to model daily rate pressures in the fed funds markets. Their model suggests that rates should decline on Fridays, rebound on Mondays, decline on the day before settlement, and increase on settlement Wednesdays.…”

Section: Daily Fed Funds Rate Changes and The Supply And Demand Of Rementioning

confidence: 99%

Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?

Kotomin

¹

,

Winters

²

2006

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“…More specifically, the literature documents how the rules defining the implementation of the monetary policy decisions contained in the frameworks make the overnight market rate particularly sensitive to the level of stress faced by market participants. In this respect, more binding reserve requirements towards the end of the maintenance period notably raise the volatility of the market for short-term funds (see, e.g., Spindt and Hoffmeister (1988), Eagle (1995), Griffiths and Winters (1995), Bartolini, Bertola and Prati (2001), and Bartolini, Bertola and Prati (2002) for the fed funds, or Hartmann, Manna and Manzanares (2001), Benito, León and Nave (2007), Gaspar, Pérez Quirós and Rodríguez Mendizábal (2008), Cassola, Durré andHolthausen (2011), andCassola, Hortacsu andKastl (2011) for the money market in the euro area). Similar forces drive the intraday operation of those markets.…”

Section: The Importance Of the Central Bank's Refinancing Operations mentioning

confidence: 99%

“…Volatility peaks near the close of trading when market participants face high pressure for finding the necessary short-term funds to end the day in a balanced position (Spindt andHoffmeister 1988, Griffiths andWinters 1995).…”

Section: The Importance Of the Central Bank's Refinancing Operations mentioning

confidence: 99%

Nonlinear Liquidity Adjustments in the Euro Area Overnight Money Market

Beaupain

¹

,

Durré

²

2009

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AcknowledgementsThe authors thank seminar and conference participants at the University of Cambridge, the Deutsche Bundesbank, the European Central Bank, and SKEMA for insightful comments. The authors are also grateful to e-MID for providing the data and very useful explanations on the functioning of the electronic platform. The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the European Central Bank or the Eurosystem.Renaud Beaupain IÉSEG School of Management and LEM-CNRS (U.M.R. 8179); e-mail: r.beaupain@ieseg.fr Alain DurréEuropean Central Bank, IÉSEG School of Management and LEM-CNRS (U.M.R. 8179); e-mail: alain.durre@ecb.europa.eu AbstractThe market-oriented approach promoted by the European Central Bank in the design of its refinancing operations creates incentives to credit insitutions to use actively the interbank market to manage their liquidity needs. In this context, we examine the ability of the overnight segment to guarantee the timely provision of unsecured funds to banks to smoothly absorb their liquidity shocks. This paper specifically focuses on the speed of reversion of transaction costs and available depth to their equilibrium levels in this market for overnight unsecured funds from 4 September 2000 to 31 December 2007. The reported evidence points to time-varying liquidity adjustments and identifies liquidity, market activity and the institutional setting of the ECB's refinancing operations as significant determinants of the observed resiliency regimes. Our analysis also shows how the speed of mean reversion of market liquidity, by affecting the level and the volatility of the overnight market rate, also affects the anchoring of the yield curve in the euro area.

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Day-of-the-week effects in federal funds rates: Further empirical findings

Cited by 73 publications

References 10 publications

Banks’ reserve management, transaction costs, and the timing of Federal Reserve intervention

Banks’ reserve management, transaction costs, and the timing of Federal Reserve intervention

Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?

Nonlinear Liquidity Adjustments in the Euro Area Overnight Money Market

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