2
$\begingroup$

I understand why the Fed Funds rate has historically dropped on the final day of each quarter, but in 2015 it appears that the effective Fed Funds rate now drops on the final day of each month as well. Is there a technical reason why this is happening?

Using the Fed Funds Futures to forecast future Fed Funds rates and want to make sure I incorporate this nuance (as I assume it's being priced into the futures).

$\endgroup$
5
$\begingroup$

This is due to the banking regulations that came couple of years back requiring foreign banks to calculate their balance sheet snapshots at the end of every month as compared to US Banks who takes the daily average. As a result, many foreign banks stay away from fed-funds market to show they are borrowing less. This forces the lenders to lend the money at cheaper rates. So, for the purpose of your study (I know its way too late)you can actually assume this glitch doesn't occur.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.