IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v35y2011i6p859-875.html
   My bibliography  Save this article

An agent-based model of payment systems

Author

Listed:
  • Galbiati, Marco
  • Soramäki, Kimmo

Abstract

We lay out and simulate a multi-agent, multi-period model of an RTGS payment system. At the beginning of the day, banks choose how much costly liquidity to allocate to the settlement process. Then, they use it to execute an exogenous, random stream of payment orders. If a bank's liquidity stock is depleted, payments are queued until new liquidity arrives from other banks, imposing costs on the delaying bank. We study the equilibrium level of liquidity posted in the system, performing some comparative statics and obtaining insights on the efficiency of alternative system configurations.

Suggested Citation

  • Galbiati, Marco & Soramäki, Kimmo, 2011. "An agent-based model of payment systems," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 859-875, June.
    • Handle: RePEc:eee:dyncon:v:35:y:2011:i:6:p:859-875
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165-1889(10)00247-2
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:zbw:bofism:2005_031 is not listed on IDEAS
    2. Kahn, Charles M & Roberds, William, 1998. "Payment System Settlement and Bank Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 845-870.
    3. Johan Devriese & Janet Mitchell, 2005. "Liquidity risk in securities settlement," Working Paper Research 72, National Bank of Belgium.
    4. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
    5. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    6. Simon Buckle & Erin Campbell, 2003. "Settlement bank behaviour and throughput rules in an RTGS payment system with collateralised intraday credit," Bank of England working papers 209, Bank of England.
    7. Devriese, Johan & Mitchell, Janet, 2006. "Liquidity risk in securities settlement," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1807-1834, June.
    8. Kukushkin, Nikolai S., 2004. "Best response dynamics in finite games with additive aggregation," Games and Economic Behavior, Elsevier, vol. 48(1), pages 94-110, July.
    9. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    10. Morten L. Bech & Rodney J. Garratt, 2012. "Illiquidity in the Interbank Payment System Following Wide-Scale Disruptions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 903-929, August.
    11. Tesfatsion, Leigh, 2001. "Introduction to the special issue on agent-based computational economics," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 281-293, March.
    12. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
    13. Beyeler, Walter E. & Glass, Robert J. & Bech, Morten L. & Soramäki, Kimmo, 2007. "Congestion and cascades in payment systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 384(2), pages 693-718.
    14. Leinonen, Harry, 2005. "Liquidity, risks and speed in payment and settlement systems : a simulation approach," Scientific Monographs, Bank of Finland, number 2005_031.
    15. Chakravorti, Sujit, 2000. "Analysis of systemic risk in multilateral net settlement systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 9-30, January.
    16. John P. Jackson & Mark J. Manning, 2007. "Central Bank intraday collateral policy and implications for tiering in rtgs payment systems," DNB Working Papers 129, Netherlands Central Bank, Research Department.
    17. Dindos, Martin & Mezzetti, Claudio, 2006. "Better-reply dynamics and global convergence to Nash equilibrium in aggregative games," Games and Economic Behavior, Elsevier, vol. 54(2), pages 261-292, February.
    18. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, December.
    19. Marco Galbiati & Simone Giansante, 2010. "Emergence of networks in large value payment systems (LVPSs)," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0110, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    20. Axelrod, Robert & Tesfatsion, Leigh, 2006. "A Guide for Newcomers to Agent-Based Modeling in the Social Sciences," Staff General Research Papers Archive 12515, Iowa State University, Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Leinonen, Harry, 2009. "Simulation analyses and stress testing of payment networks," Scientific Monographs, Bank of Finland, number 2009_042.
    2. repec:zbw:bofism:2009_042 is not listed on IDEAS
    3. Leinonen, Harry (ed.), 2009. "Simulation analyses and stress testing of payment networks," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2009_042, December.
    4. De Caux, Robert & Brede, Markus & McGroarty, Frank, 2016. "Payment prioritisation and liquidity risk in collateralised interbank payment systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 139-150.
    5. Kei Imakubo & Yutaka Soejima, 2010. "The Microstructure of Japan's Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 151-180, November.
    6. Ball, Alan & Denbee, Edward & Manning, Mark & Wetherilt, Anne, 2011. "Financial Stability Paper No 11: Intraday Liquidity - Risk and Regulation," Bank of England Financial Stability Papers 11, Bank of England.
    7. Merrouche, Ouarda & Schanz, Jochen, 2010. "Banks' intraday liquidity management during operational outages: Theory and evidence from the UK payment system," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 314-323, February.
    8. Tore Nilssen, 2011. "Risk externalities in a payments oligopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 211-234, December.
    9. Ratul Lahkar, 2017. "Large Population Aggregative Potential Games," Dynamic Games and Applications, Springer, vol. 7(3), pages 443-467, September.
    10. Nellen, Thomas, 2019. "Intraday liquidity facilities, late settlement fee and coordination," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 124-131.
    11. Sinelnikova-Muryleva, Elena (Синельников-Мурылева, Елена), 2018. "Analysis of the Consequences of the Development of Payment Systems for Monetary Policy in the Context of Deepening Financial Markets [Анализ Последствий Развития Платежных Систем Для Денежно-Кредит," Working Papers 031813, Russian Presidential Academy of National Economy and Public Administration.
    12. Norman, Ben, 2010. "Financial Stability Paper No 7: Liquidity Saving in Real-Time Gross Settlement Systems - an Overview," Bank of England Financial Stability Papers 7, Bank of England.
    13. Mark J Manning & Matthew Willison, 2006. "Modelling the cross-border use of collateral in payment systems," Bank of England working papers 286, Bank of England.
    14. repec:zbw:bofrdp:2003_023 is not listed on IDEAS
    15. Morten L. Bech & Rodney J. Garratt, 2012. "Illiquidity in the Interbank Payment System Following Wide‐Scale Disruptions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 903-929, August.
    16. Torsten Heinrich & Yoojin Jang & Luca Mungo & Marco Pangallo & Alex Scott & Bassel Tarbush & Samuel Wiese, 2021. "Best-response dynamics, playing sequences, and convergence to equilibrium in random games," Papers 2101.04222, arXiv.org, revised Nov 2022.
    17. Rodney J. Garratt, 2022. "An Application of Shapley Value Cost Allocation to Liquidity Savings Mechanisms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1875-1888, September.
    18. Leinonen, Harry & Soramäki, Kimmo, 2003. "Simulating interbank payments and securities settlement mechanism with the BoF-PSS2 simulator," Bank of Finland Research Discussion Papers 23/2003, Bank of Finland.
    19. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    20. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2010. "Computational Methods for Oblivious Equilibrium," Operations Research, INFORMS, vol. 58(4-part-2), pages 1247-1265, August.
    21. Ross Cressman, 2009. "Continuously stable strategies, neighborhood superiority and two-player games with continuous strategy space," International Journal of Game Theory, Springer;Game Theory Society, vol. 38(2), pages 221-247, June.
    22. Dindos, Martin & Mezzetti, Claudio, 2006. "Better-reply dynamics and global convergence to Nash equilibrium in aggregative games," Games and Economic Behavior, Elsevier, vol. 54(2), pages 261-292, February.

    More about this item

    Keywords

    Payment systems Liquidity RTGS Agent-based modelling Learning Fictitious play;

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:35:y:2011:i:6:p:859-875. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.