Advanced Search
MyIDEAS: Login

Production, Hidden Action, and the Payment System

Contents:

Author Info

Abstract

In this paper, we study a model economy that can account for the distribution of payments within a day. In our model, debtors choose when to arrive at the settlement location. Concomitant with choosing their arrival, debtors are making a production decision. We assume there is a cost to arriving early; that is, late-arrival is associated with a technology that dominates early arrival/production. Second, we treat the debtor's choice as hidden from creditors. We derive conditions under which the planner allocates production to each type of agents. In the decentralized setting, there is a nonarbitrage condition that is consistent with a positive intraday rate. The central bank may be able to implement the planner's allocation with a proper intraday interest rate. In some cases, the optimal intraday rate is positive.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://economics.missouri.edu/working-papers/2010/wp1004_gu.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Mark Stratton)
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of Missouri in its series Working Papers with number 1004.

as in new window
Length: 25 pgs.
Date of creation: 15 Mar 2010
Date of revision:
Handle: RePEc:umc:wpaper:1004

Contact details of provider:
Postal: 118 Professional Building, Columbia, MO 65211
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page: http://economics.missouri.edu/
More information through EDIRC

Related research

Keywords: Friedman rule; discount window policy; payment system; intraday rate; settlement risk .;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Jeffrey M. Lacker, 1997. "Clearing, settlement, and monetary policy," Working Paper 97-01, Federal Reserve Bank of Richmond.
  2. James T. E. Chapman & Antoine Martin, 2007. "Rediscounting Under Aggregate Risk with Moral Hazard," Working Papers 07-51, Bank of Canada.
  3. Williamson, Stephen D. & Wright, Randall, 2010. "New Monetarist Economics: Methods," MPRA Paper 21486, University Library of Munich, Germany.
  4. Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 13-29.
  5. Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2007. "Why does overnight liquidity cost more than intraday liquidity?," Staff Reports 281, Federal Reserve Bank of New York.
  6. ANTOINE MARTIN & JAMES McANDREWS, 2010. "Should There Be Intraday Money Markets?," Contemporary Economic Policy, Western Economic Association International, vol. 28(1), pages 110-122, 01.
  7. 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.
  8. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December.
  9. Scott Freeman, 2002. "Payments and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 602-617, July.
  10. 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.
  11. Olivier Armantier & Jeffrey Arnold & James McAndrews, 2008. "Changes in the timing distribution of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-112.
  12. Antoine Martin, 2002. "Optimal pricing of intra-day liquidity," Research Working Paper RWP 02-02, Federal Reserve Bank of Kansas City.
  13. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
  14. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  15. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  16. Freeman, Scott, 1999. "Rediscounting under aggregate risk," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 197-216, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Marius Jurgilas & Filip Zikes, 2013. "Implicit intraday interest rate in the UK unsecured overnight money market," Working Paper 2013/09, Norges Bank.
  2. Chao Gu & Joseph H. Haslag & Mark Guzman, 2010. "Production, Hidden Action, and the Payment System," Working Papers 1004, Department of Economics, University of Missouri.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:1004. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Stratton).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.