The impact of the return to lagged reserve requirements on the federal funds market

Vladimir Kotomin, Drew B. Winters

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

We examine the impact on the settlement Wednesday effect in daily fed funds rates following the change from contemporaneous reserve requirements (CRR) to lagged reserve requirements (LRR). The Federal Reserve changed from CRR to LRR, in part, to make it easier for banks to settle their reserve accounts. Our hypothesis is that the switch to LRR will reduce the demand for reserves on settlement Wednesdays, thus reducing the settlement Wednesday effect in fed funds rates. Our empirical results provide strong support for our hypothesis.

Original languageEnglish
Pages (from-to)111-129
Number of pages19
JournalJournal of Economics and Business
Volume59
Issue number2
DOIs
StatePublished - Mar 2007

Keywords

  • Reserve requirements
  • Settlement Wednesday effects

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