NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Gara Afonso

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Working Papers

August 2014Trade Dynamics in the Market for Federal Funds
with Ricardo Lagos: w20419
We develop a model of the market for federal funds that explicitly accounts for its two distinctive features: banks have to search for a suitable counterparty, and once they meet, both parties negotiate the size of the loan and the repayment. The theory is used to answer a number of positive and normative questions: What are the determinants of the fed funds rate? How does the market reallocate funds? Is the market able to achieve an efficient reallocation of funds? We also use the model for theoretical and quantitative analyses of policy issues facing modern central banks.
March 2010Stressed not Frozen: The Fed Funds Market in the Financial Crisis
with Anna Kovner, Antoinette Schoar: w15806
This paper examines the impact of the financial crisis of 2008 on the federal funds market, specifically the bankruptcy of Lehman Brothers. Rather than a complete collapse of lending in the presence of a market wide shock, we see that banks become more restrictive in which counterparties they lend to. After Lehman Brothers, we find that amounts and spreads become more sensitive to borrower bank characteristics. While the market does not contract dramatically, lending rates increase. Further, the market does not seem to expand to meet the increased demand predicted by the drop in other bank funding markets. We examine discount window borrowing as a proxy for unmet fed funds demand and find that the fed funds market is not indiscriminate. As expected, borrowers who access the discount window...

Stressed not Frozen: The Federal Funds Market after the Financial Crisis” joint with Gara Afonso and Anna Kovner, September 2009, The Journal of Finance, forthcoming.

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