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A duality theory of payment systems

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  • Peñaloza, Rodrigo

Abstract

We model the Central Bank's management of intraday liquidity in modern real-time gross settlement systems as a linear programming problem parameterized by different intraday monetary policies, such as reserve requirements, net debit caps and Lombard loans. We then use duality theory to determine the shadow-prices of constraints of each bank. These shadow-prices can be used by the Central Bank to set personalized intraday monetary policies in order to reduce idleness of money and to give a microfoundation of the too-big-to-fail policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 45 (2009)
Issue (Month): 9-10 (September)
Pages: 679-692

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Handle: RePEc:eee:mateco:v:45:y:2009:i:9-10:p:679-692

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Web page: http://www.elsevier.com/locate/jmateco

Related research

Keywords: Central banking Real-time gross settlement systems Shadow-prices;

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