Dynamic implicit cost and Discount Window borrowing. An empirical investigation

This paper investigates dynamic implicit cost in aggregate Discount Window borrowing. We utilize Goodfriend's formulation, with nonprice rationing based upon the bank's current request and its past borrowing record. Estimation by Generalized-Method-of-Moments reveals a positive, systematic implicit cost structure which dampens over time. Significance extends back to nine biweekly reserve maintenance intervals. We also specify implicit cost as a geometrically declining distributed lag of past borrowing and derive a semi-reduced form for borrowed reserve demand. Empirical results support this specification as well.