Money Market Integration

Abstract

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 AbstractWe use transaction-level data and detailed modeling of the high-frequency behavior of federal funds-Eurodollar yield spreads to provide evidence of strong integration between the federal funds and Eurodollar markets, the two core components of the dollar money market. Our results contrast with previous research indicating that these two markets are segmented, showing them to be well integrated even at high (intraday) frequency. We document several patterns in the behavior of federal funds-Eurodollar spreads, including liquidity effects from trading volume on yield spreads' volatility. Our analysis supports the view that targeting federal funds rates alone is sufficient to stabilize rates in the (much larger) dollar money market as a whole.

The 2011 FDIC Assessment on Banks' Managed Liabilities: Interest Rate and Balance-Sheet Responses

“…Before the crisis, Lee (2003) and Demiralp et al (2006) found small unexploited arbitrage opportunities between federal funds and eurodollars, but they used the Board of Governors' overnight eurodollar rate, which is known to have limitations. Bartolini et al (2008) found these markets very well integrated pre-crisis.…”

Monetary Policy Implementation: A Microstructure Approach

“…Even more specialized, the Fed Funds rate is the rate banks charge other banks for overnight deposits at the Federal Reserve. 9 In general the three money markets are closely integrated and all three rates move together (Demiralp, Preslopsky, and Whitesell 2004;Bartolini, Hilton and Prati 2005). However, on average (though not always) the repo rate has been lower than the Fed Funds rate, and the Eurodollar rate slightly higher than the Fed Fund sate.…”