AN EMPIRICAL-INVESTIGATION OF THE DETERMINANTS OF DISCOUNT WINDOW BORROWING - A DISAGGREGATE ANALYSIS

This article investigates the individual demand for discount window cr edit by employing a cross-sectional time-series database of commercial banks. The analysis employs a simple linear model that accounts for t he latent nature of individual borrowing. Our findings reveal that bor rowing is positively correlated with the federal funds-discount rate s pread. Large borrowers are shown to have a stronger correlation betwee n borrowing and the federal funds spread. In addition, we find that th e nonprice mechanism is more binding on large banks that avoid contigu ous use of the discount facility or defer their visit in the expectati on that interest rates will increase in the near future.