Policy Coordination in an International Payment System
AbstractGiven the increasing interdependence of both financial systems and attendant payment and settlement systems a vital question is what form should optimal policy take when there are two connected payment systems with separate regulators. In this paper I show that two central banks operating in a non-cooperative way will not have an incentive to achieve the optimal allocation of goods. I further show that this non-cooperative outcome will be supported by a zero intraday interest rate and constant fixed exchange rate. This is in contrast to recent research; which has shown that domestically a zero intraday interest rate will achieve a social optimum and that the central bank has an incentive to achieve it.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 08-17.
Length: 33 pages
Date of creation: 2008
Date of revision:
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Payment; clearing; and settlement systems; Exchange rate regimes;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-07 (All new papers)
- NEP-CBA-2008-06-07 (Central Banking)
- NEP-IFN-2008-06-07 (International Finance)
- NEP-MAC-2008-06-07 (Macroeconomics)
- NEP-MON-2008-06-07 (Monetary Economics)
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