Federal funds rate volatility
An examination of the role that monetary policy easings and reduced reserve requirements played in the increased federal funds volatility of late 1990 and early 1991.
Comparing Central Banks' Rulebooks
Banks' account relationships with their Federal Reserve Banks are changing because account regulations are changing. The Board of Governors of the Federal Reserve System began a program in 1986 to limit banks' use of daylight overdrafts, broadened the program in 1991, and beginning in 1994 will charge a fee for daylight overdrafts that exceed certain minimum amounts. The Board also reduced reserve requirements to zero on nontransactions deposits in 1990 and cut the highest reserve requirement on transactions deposits from 12 percent to 10 percent in 1992.
Central banks and short-term interest rates : Bank of England operations in the sterling money market
The policy instrument of central banks everywhere has usually been a short-term nominal interest rate. This means that central banks have adopted operating procedures whose goal has been to produce some desired level of money market interest rates. Although the Bank of England was in many respects the pioneer of these operating procedures, theoretical and empirical attention has focused almost exclusively on the Federal Reserve. This thesis aims to redress this imbalance by examining - in detail - the sterling money market and the operations of the Bank of England. This task is carried out in two parts. Part I reviews central banks' use of the interest instrument more generally, beginning with an historical sketch of the evolution of central bank money market operations. This sketch is complemented by a critical discussion of two important concepts relating to such operations, namely interest rate smoothing and money base control. A simple analytical model is then developed to illustrate the determination of money market interest rates by the central bank. Part II specifically concerns the money market operations of the Bank of England, and their implications for the behaviour of sterling money market interest rates. First, a model of the term structure of money market interest rates is derived. Its predicted behaviour in reaction to a change in the Bank's official rate is then empirically verified. Next, the yield on eligible bills - the Bank's intervention asset - is examined. It is argued that these assets carry an excess liquidity premium, arising from the Bank's constraints on their issue. Finally, an empirical model of the overnight interest rate - the UK equivalent of the federal funds rate - is developed, and the reasons for its volatility are investigated.