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July/August 2001, 
Vol. 83, No. 4
Posted 2001-07-01

Identifying the Liquidity Effect at the Daily Frequency

The author models the reserve market based on the Fed’s operating procedure and shows why the liquidity effect cannot be identified using Hamilton’s methodology. In addition, the author finds there is no liquidity effect using Hamilton’s methodology for sample periods before and after his. He suggests an alternative approach to estimating the liquidity effect at the daily frequency.