Standing facilities and interbank borrowing
Subtitle: evidence from the Federal Reserve's new discount window
By: Craig Furfine.
Series: Working paper series ;; WP-2004-01; Working paper series (Federal Reserve Bank of Chicago. Research Dept. : Online) ;; WP-2004-01.
Publisher: Federal Reserve Bank of Chicago
Published: 2004
Place of publication: [Chicago, Ill.]
Language: eng
Format: Electronic resource
Description: "Standing facilities are designed to place an upper bound on the rates at which financial institutions lend to one another overnight, reducing the volatility of the overnight interest rate, typically the rate targeted by central banks.  However, improper design of the facility might decrease a bank's incentive to participate actively in the interbank market.  Thus, the mere availability of central bank provided credit may lead to its use being more than what would be expected based on the characteristics of the interbank market.  By contrast, however, banks may perceive a stigma from using such facilities, and thus borrow less than what one might expect, thereby reducing the facilities' effectiveness at reducing interest rate volatility.  We develop a model demonstrating these two alternative implications of a standing facility.  Empirical predictions of the model are then tested using data from the Federal Reserve's new primary credit facility and the US federal funds market.  A comparison of data from before and after recent changes to the discount window suggests continued reluctance to borrow from the Fed"--Federal Reserve Bank of Chicago web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 9/30/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.