Falling Reserve Balances and the Federal Funds Rate

6 Pages Posted: 11 Jul 2007

See all articles by Paul B. Bennett

Paul B. Bennett

Fordham University Business School

Spence Hilton

Federal Reserve Bank of New York - Research Group; National Bureau of Economic Research (NBER)

Date Written: April 1997

Abstract

The growth of 'sweeps' - a banking practice in which depository institutions shift funds out of customer accounts subject to reserve requirements - has reduced the required balances held by banks in their accounts at the Federal Reserve. This development could lead to greater volatility in the federal funds rate as banks try to manage their accounts with very low balances. An analysis of the evidence suggests that the volatility of the funds rate is rising slightly, but not enough to disrupt the federal funds market or affect the implementation of monetary policy.

Keywords: reserve requirements, sweep accounts

JEL Classification: E5

Suggested Citation

Bennett, Paul B. and Hilton, Spence, Falling Reserve Balances and the Federal Funds Rate (April 1997). Current Issues in Economics and Finance Vol. 3, No. 5, April 1997, Available at SSRN: https://ssrn.com/abstract=998875 or http://dx.doi.org/10.2139/ssrn.998875

Paul B. Bennett (Contact Author)

Fordham University Business School ( email )

1790 Broadway
New York
New York, NY 10019
United States
917 434 0226 (Phone)

HOME PAGE: http://business.fordham.edu/faculty/bennett

Spence Hilton

Federal Reserve Bank of New York - Research Group ( email )

33 Liberty Street
New York, NY 10045
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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