Liquidity hoarding by banks and extreme volatility of the fed funds rate have been widely seen as severely disrupting … volatility. We develop a model with credit and liquidity frictions in the interbank market consistent with the empirical results …

In this paper we model the volatility of the spread between the overnight interest rate and the central bank policy … 2007. During the crisis, the policy spread exhibited signs of volatility, owing to the breakdown in interbank market … activity. The determinants of this volatility are assessed using Stochastic Volatility models to gauge the role played by …