What does the “effective” federal funds rate mean?is this the real US interest rate or just the nominal?





i am writing an essay and have a graph of the federal funds rate (effective).what exactly does this mean?the essay focuses on the effects of increasing interest rates.the monetary expansion which began after the dot.com bubble burst and the terrorist attacks,caused interest rates to fall and eventually output to increase back to its normal level.having studied diagrams it would appear that in the medium run the price should absorb the increase in nominal money and nominal interest rates should increase by the same proportion...and therefore be higher than they were before the expansion BUT with the same REAL interest rate due to the increase in price (i.e. inflation).i am hoping that the effective federal funds rate simply means the real interest rate so my graph and theories make sense



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One Answer to “What does the “effective” federal funds rate mean?is this the real US interest rate or just the nominal?”

  1. billable says:

    The daily effective federal funds rate is a volume-weighted average of rates on trades arranged by major brokers. The effective rate is calculated by the Federal Reserve Bank of New York using data provided by the brokers and is subject to revision.