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An analysis of execution rates for trades in NYSE issues completed on the NYSE, the NASD dealer market, and the regional stock exchanges in 1994 revealed that effective bid-ask spreads are only modestly larger for trades executed off the NYSE. However, trades in NYSE issues negotiated off the NYSE has less information than trades executed on the NYSE. This finding indicates the success of non-NYSE makers to 'cream skim' a subset of trades that is processed at lesser rates. Thus, realized bid-ask spreads are smaller on the NYSE by a factor of two or three.

The practice of ignoring simultaneity in designing monetary policies is criticized. The existing models for central bank behavior is inconsistent with actual application since it assumes that the central bank's causal relationships and system dynamics are not affected by operating procedure and regulatory structure. An endogenous approach to model building would promote its reliability, robustness and predictive power.

Commercial bank behavior is not adequately dealt with in existing macro models of the financial sector. The central role of a demand for excess reserves (or free reserves) function in models of the money supply process is particularly suspect. In this paper, it' is argued that changes in commercial bank behavior induced by alterations in economic and financial conditions and various banking regulations, along with the central bank's approach to policy, have combined to alter the excess reserve function and the relationship between bank reserves and the money supply. Empirical work presented suggests that the "demand" for excess reserves has indeed undergone structural change. Thus, the study indicates that conventional approaches to commercial bank behavior and the demand for excess reserves need to be reworked. [ABSTRACT FROM AUTHOR]

Several important aspects of the growth of the Federal funds market and non-bank participation in this market are examined. It is shown that the recent growth and development that has taken place has significantly influenced bank behavior and the process of bank credit determination. Additionally, it is shown that non-banks' use of Federal funds sales as an integral part of their cash management affects money demand. The implications of these recent developments in the Federal funds market for policymakers are examined. [ABSTRACT FROM AUTHOR]