ScholarLens Back to search
2016•Review of EconomicsRequires access

Pure Theory of the Federal Funds Rate

Stefan Homburg

Open publisher page 1 citations

Abstract

Abstract The effective federal funds rate is determined in a competitive interbank market, while the target federal funds rate represents a policy variable. This paper proposes a theory of the determination of the effective funds rate. According to the main result, the latter is a Lagrange multiplier that vanishes if excess reserves emerge. This is exactly what happened in the United States in September 2008. A final section considers interest on reserves.

About this research paper

What this paper is about

Abstract The effective federal funds rate is determined in a competitive interbank market, while the target federal funds rate represents a policy variable. This paper proposes a theory of the determination of the effective funds rate. According to the main result, the latter is a Lagrange multiplier that vanishes if excess reserves emerge. This is exactly what happened in the United States in September 2008. A final section considers interest on reserves.

Why it matters

OpenAlex reports 1 citations for this work. Citation counts describe recorded attention and do not establish research quality.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

Abstract The effective federal funds rate is determined in a competitive interbank market, while the target federal funds rate represents a policy variable. This paper proposes a theory of the determination of the effective funds rate. According to the main result, the latter is a Lagrange multiplier that vanishes if excess reserves emerge. This is exactly what happened in the United States in September 2008. A final section considers interest on reserves.

Key concepts: Federal funds, Interbank lending market, Excess reserves, Global assets under management, Monetary economics, Economics, Interest rate, Monetary policy

Related papers

Related paper 1Related paper 2Related paper 3
Back to paper searchBrowse research topicsOriginal source
Pure Theory of the Federal Funds Rate — Research Paper | ScholarLens