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Operational outages and aggregate uncertainty in the federal funds market

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  • Klee, Elizabeth

Abstract

This paper uses operational problems at depository institutions in sending Fedwire payments as a proxy for aggregate uncertainty in end-of-day Fed account positions and then examines funds market behavior on those days. The results suggest that increased uncertainty is associated with a deviation of the federal funds rate from the Federal Open Market Committee's (FOMC's) target rate; the magnitude depends on the severity of the difficulty, the payment volume of the affected participant, and the time of day. The intraday standard deviation of the federal funds rate is also affected by operational outages. Moreover, extensions to Fedwire are more likely on days with possible outages, and discount window borrowing picks up on these days as well.

Suggested Citation

  • Klee, Elizabeth, 2010. "Operational outages and aggregate uncertainty in the federal funds market," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2386-2402, October.
    • Handle: RePEc:eee:jbfina:v:34:y:2010:i:10:p:2386-2402
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    7. Irving Fisher Committee, 2022. "Machine learning in central banking," IFC Bulletins, Bank for International Settlements, number 57.
    8. Neville Arjani & Ronald Heijmans, 2020. "Is there anybody out there? Detecting operational outages from LVTS transaction data," Working Papers 683, DNB.
    9. Foote, Elizabeth, 2014. "Information asymmetries and spillover risk in settlement systems," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 179-190.
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