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Disruptions in large value payment systems: An experimental approach

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  • Klaus Abbink
  • Ronald Bosman
  • Ronald Heijmans
  • Frans van Winden

Abstract

This experimental study investigates the behaviour of banks in a large value payment system. More specifically, we look at 1) the reactions of banks to disruptions in the payment system, 2) the way in which the history of disruptions affects the behaviour of banks (path dependency) and 3) the effect of more concentration in the payment system (heterogeneous market versus a homogeneous market). The game used in this experiment is a stylized version of a model of Bech and Garrett (2006) in which each bank can choose between paying in the morning (efficient) or in the afternoon (inefficient). The results show that there is significant path dependency in terms of disruption history. Also the chance of disruption influences the behaviour of the participants. Once the system is moving towards the inefficient equilibrium, it does not easily move back to the efficient one. Furthermore, there is a clear leadership effect in the heterogeneous market.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 263.

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Date of creation: Oct 2010
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Handle: RePEc:dnb:dnbwpp:263

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Keywords: payment systems; financial stability; experiment; decision making;

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  1. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1991. "Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 885-910, August.
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Cited by:
  1. van Lelyveld, Iman & Liedorp, Franka & Pröpper, Marc, 2008. "Stress Testing Linkages between Banks in the Netherlands," MPRA Paper 10092, University Library of Munich, Germany.
  2. Ronald Heijmans & Richard Heuver & Clement Levallois & Iman van Lelyveld, 2014. "Dynamic visualization of large transaction networks: the daily Dutch overnight money market," DNB Working Papers 418, Netherlands Central Bank, Research Department.
  3. Ronald Heijmans & Richard Heuver, 2011. "Is this bank ill? The diagnosis of doctor TARGET2," DNB Working Papers 316, Netherlands Central Bank, Research Department.

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