6 votes

Credit risk of interest rate on excess reserves vs fed funds rate?

Actually the IOER has slightly exceeded the Fed Funds rate in recent years. Currently IOER is 10bp and FF last set at 8bp for example. During the period 2009 to 2015, IOER was set at 25bp and FF ...
dm63's user avatar
  • 1,248
4 votes

Why doesn't conventional monetary policy involve long-term interest rate targets?

The question doesn't sound weird. In fact, targeting of longer-term yields is not a new idea. It's commonly called yield curve control. The US Fed implemented yield curve control during and after WWII ...
BrsG's user avatar
  • 1,632
3 votes
Accepted

How does the Fed ensure the realised overnight interbank lending right stays within the Fed Funds Rate band?

Since the advent of quantitative easing in the post 2008 era, Fed Funds has been mainly controlled as described by your second source. Prior to 2008 the first source was the primary control. ...
dm63's user avatar
  • 1,248
3 votes

Inflation vs fed hike

Inflation can be self-sustaining, in the sense that demand can actually increase due to inflation. Since things will only keep getting a lot more expensive, better to make your purchases now than wait ...
BB King's user avatar
  • 6,148
3 votes

Are major banks in US necessarily going to benefit from the rise of federal fund rates?

Major banks will not necessarily benefit from a rise in the federal funds rate. One way major banks make money is from the difference between the interest rates they borrow at and the rates they lend ...
James Wattam's user avatar
2 votes

Are low rates a subsidy to banks?

Axel Leijonhufvud said... The Fed is supplying the banks with reserves at a near-zero rate. The bank reserves are in part funded by deposits in transaction accounts and savings accounts. The ...
H2ONaCl's user avatar
  • 943
2 votes
Accepted

Does FED's change in short-interest rates impact long term rates?

Yes, it does. This topic is a subject of active research in monetary economics and finance. Hanson and Stein (2015) and Nakamura and Steinsson (2018) showed that change in Fed Funds rate affects bond ...
Moysey Abramowitz's user avatar
2 votes

impact of a gradual adjustment of the federal funds rate

What are the benefits of raising rates slowly? Obviously getting a feel for the economy with as little interjection as possible is good, but why didn't they just raise the rates by say 2 or more whole ...
1muflon1's user avatar
  • 56.4k
1 vote
Accepted

If inflation rate drops, what happens to Feds Fund rate?

If you read the recent speeches by members of the Federal Open Markets Committee, which sets the target Fed funds rate, a majority seems to favor cutting rates once they are convinced that inflation ...
dm63's user avatar
  • 1,248
1 vote

A question about Ihrig et al. (2015) and the Fed's policy implementation prior to 2008

The reason for this is that prior 2009 the interest rate on reserves was not zero and Fed kept reserves scarce. The top of the demand curve is censored by the discount rate, which is an effective ...
1muflon1's user avatar
  • 56.4k
1 vote
Accepted

What were the benefits of creating ON RRP (versus expanding the availability of IOR)?

Some banks are "non-member banks". A non-member bank is not subject to the requirements of a member bank of the Federal Reserve system. Here is a link to a reference from the Journal of ...
H2ONaCl's user avatar
  • 943
1 vote
Accepted

Why does decrease in Feds fund rate lead to decrease in core PCE inflation rate?

You can't figure out relationship between two variables from forecasting values in the table. The table does not imply that there is positive relationship between interest rate and inflation. Here you ...
1muflon1's user avatar
  • 56.4k
1 vote

Do U.S. Fed Interest Rate hikes and bond yields have a causal effect on each other?

Fed rate is fixed by the Fed and Fed usually does not target bond yields you can read about that here. So usually there won't be causality from yields to Fed rate, but in cases where Fed is concerned ...
csilvia's user avatar
  • 2,735
1 vote
Accepted

Are there still (2022) bank reserve requirements, and if not, how do open market operations now work with the target rate?

Yes the reserve requirement in US is zero (see Fed). If the penalty for inadequate reserves is gone, what would banks be lending to each other overnight for? There is still reason for banks to keep ...
1muflon1's user avatar
  • 56.4k
1 vote
Accepted

Why do reserves increase when the Fed buys bonds? (Introduction to Macroeconomics)

Because Fed buys those bonds with newly created reserves not already existing money. So when Fed wants to buy \$1000 bond it creates \$1000 worth of new reserves.
1muflon1's user avatar
  • 56.4k
1 vote

Are low rates a subsidy to banks?

To my best knowledge there is no research directly examining this question empirically for the United States banking sector, although it’s possible I might have missed something in which case I hope ...
1muflon1's user avatar
  • 56.4k
1 vote

Credit risk of interest rate on excess reserves vs fed funds rate?

Both federal funds rate and rate on excess reserves are determined by Fed's Federal Open Market Committee (FOMC). These rates are not set by the market but by the decision of the Fed, which depends on ...
csilvia's user avatar
  • 2,735
1 vote

Why is the prime rate typically 3% higher than the fed funds rate?

The Prime Rate in the US is supposed to represent the rate at which banks make loans to customers. For many years is has been set at Fed Funds+300bp, whereas the rate at which banks actually make ...
dm63's user avatar
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