Whither the liquidity effect: The impact of Federal Reserve open market operations in recent years

Previous research indicated that the daily liquidity effect, or the change in the federal funds rate associated with an exogenous change in Fed balances, varies with several factors including the day of the maintenance period. In this paper, we examine data from 1998 to 2007, the recent period of increased Federal Reserve transparency before the financial crisis, and find that the liquidity effect stabilized across days of the maintenance period. We conclude that the liquidity effect may be a function of the uncertainty about banks' end-of-day balances, as well as pure maintenance period effects. Moreover, we find that increased transparency led to a larger liquidity effect on the days prior to an FOMC meeting.