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Should There Be Intraday Money Markets?

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  • ANTOINE MARTIN
  • JAMES McANDREWS

Abstract

"In this article, we consider the case for an intraday market for reserves. We discuss the separate roles of intraday and overnight reserves and argue that an intraday market could be organized in the same way as the overnight market. We present arguments in favor of and against a market for intraday reserves when the marginal cost of overnight reserves is positive. We also consider how reserves should be supplied when the cost of overnight reserves is zero. In that case, the distinction between overnight and intraday reserves becomes blurred, raising an important question: What is the role of the overnight market?"("JEL" E44, E58) Copyright (c) 2009 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 28 (2010)
Issue (Month): 1 (01)
Pages: 110-122

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Handle: RePEc:bla:coecpo:v:28:y:2010:i:1:p:110-122

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References

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  1. Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2007. "Why Does Overnight Liquidity Cost More Than Intraday Liquidity?," Staff General Research Papers 13096, Iowa State University, Department of Economics.
  2. Marvin Goodfriend & Jeffrey M. Lacker, 1999. "Limited commitment and central bank lending," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-27.
  3. Freeman, Scott, 1999. "Rediscounting under aggregate risk," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 197-216, February.
  4. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
  5. Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October.
  6. Leonardo Bartolini & Svenja Gudell & Spence Hilton & Krista Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Nov).
  7. Antoine Martin, 2002. "Optimal pricing of intra-day liquidity," Research Working Paper RWP 02-02, Federal Reserve Bank of Kansas City.
  8. William Roberds, 1993. "The rise of electronic payments networks and the future role of the Fed with regard to payment finality," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 1-22.
  9. David C. Mills, Jr. & Travis D. Nesmith, 2007. "Risk and concentration in payment and securities settlement systems," Finance and Economics Discussion Series 2007-62, Board of Governors of the Federal Reserve System (U.S.).
  10. Jeffrey M. Lacker, 1997. "Clearing, settlement, and monetary policy," Working Paper 97-01, Federal Reserve Bank of Richmond.
  11. Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 13-29.
  12. David C. Mills, Jr, 2004. "Mechanism Design and the Role of Enforcement in Freeman's Model of Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 219-236, january.
  13. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December.
  14. James T.E. Chapman & Antoine Martin, 2013. "Rediscounting under Aggregate Risk with Moral Hazard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 651-674, 06.
  15. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  16. Angelini, Paolo, 2000. "Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 54-73, February.
  17. Charles M. Kahn & William Roberds, 1999. "The design of wholesale payments networks: the importance of incentives," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 30-39.
  18. Brian F. Madigan & William R. Nelson, 2002. "Proposed revision to the Federal Reserve's discount window lending programs," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 313-319.
  19. James J. McAndrews, 2006. "Alternative arrangements for the distribution of intraday liquidity," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 12(Apr).
  20. William Whitesell, 2006. "Monetary policy implementation without averaging or rate corridors," Finance and Economics Discussion Series 2006-22, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:
  1. Gu, Chao & Guzman, Mark & Haslag, Joseph, 2011. "Production, hidden action, and the payment system," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 172-182, March.
  2. Jurgilas, Marius & Zikes, Filip, 2012. "Implicit intraday interest rate in the UK unsecured overnight money market," Bank of England working papers 447, Bank of England.
  3. James Chapman, Jonathan Chiu, and Miguel Molico, 2010. "Central Bank Haircut Policy," Working Papers 10-23, Bank of Canada.

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