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A Model of Tiered Settlement Networks

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Author Info
James Chapman
Jonathan Chiu
Miguel Molico

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Abstract

This paper develops a model of settlement system to study the endogenous structure of settlement networks, and the welfare consequences of clearing agent failure. The equilibrium degree of tiering is endogenously determined by the cost structure and the information structure. The degree of tiering is decreasing in the fixed cost of operating the second-tier network and the availability of public credit history. Furthermore, the welfare effects of clearing agent failure can be decomposed into operational inefficiency and the loss of private information.

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File URL: http://www.bankofcanada.ca/en/res/wp/2008/wp08-12.pdf
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Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number 08-12.

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Length: 43 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bca:bocawp:08-12

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Related research
Keywords: Payment; clearing; and settlement systems;

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Charles M. Kahn & William Roberds, 2002. "Payments settlement under limited enforcement: Private versus public systems," Working Paper 2002-33, Federal Reserve Bank of Atlanta. [Downloadable!]
    Other versions:
  2. James T. E. Chapman & Antoine Martin, 2007. "Rediscounting under aggregate risk with moral hazard," Staff Reports 296, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  3. Alexandra Lai & Nikil Chande & Sean O'Connor, 2006. "Credit in a Tiered Payments System," Working Papers 06-36, Bank of Canada. [Downloadable!]
    Other versions:
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This page was last updated on 2009-11-16.

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