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Falling Reserve Balances and the Federal Funds Rate, Volume 3, Issue 5

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Falling Reserve Balances and the Federal Funds Rate, Volume 3, Issue 5

DATE: April 1997

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ABSTRACT: The growth of 'sweeps'—a banking practice in which depository institutions shift funds out of customer accounts subject to reserve requirements—has reduced the required balances held by banks in their accounts at the Federal Reserve. This development could lead to greater volatility in the federal funds rate as banks try to manage their accounts with very low balances. An analysis of the evidence suggests that the volatility of the funds rate is rising slightly, but not enough to disrupt the federal funds market or affect the implementation of monetary policy.

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Federal Reserve Bank of New York. Research and Statistics Group. "Falling Reserve Balances and the Federal Funds Rate, Volume 3, Issue 5," Current Issues in Economics and Finance (April 1997). https://fraser.stlouisfed.org/title/6879/item/627875, accessed on March 28, 2023.

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