Sequential Policies for Bank Money Management

Published Online:https://doi.org/10.1287/mnsc.20.3.385

Banks must hold an average deposit balance in the Federal Reserve Bank each week. Surplus or deficit balances may be traded on the Federal funds market. The rate on Fed funds behaves as a random variable over the week as does the size of the surplus or deficit to be offset. Incorporating both these sources of uncertainty, sequential minimax and expected utility maximizing strategies are derived for offsetting the surplus or deficit over the week.

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