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Production, hidden action, and the payment system

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Listed author(s):
  • Gu, Chao
  • Guzman, Mark
  • Haslag, Joseph

Abstract

Using a modified version of Freeman's (1996) payment system model, the optimal intraday rate is examined. The production set is modified to account for a non-degenerate distribution of settlements within a day. In addition to the modified production set, the consumption set is modified. A positive intraday interest rate may be able to implement the planner's allocation.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 58 (2011)
Issue (Month): 2 (March)
Pages: 172-182

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Handle: RePEc:eee:moneco:v:58:y:2011:i:2:p:172-182
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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Find related papers by JEL classification:
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
  • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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  1. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  2. Antoine Martin, 2008. "Reconciling Bagehot with the Fed's response to September 11," Staff Reports 217, Federal Reserve Bank of New York.
  3. Stephen D. Williamson & Randall Wright, 2010. "New monetarist economics: methods," Review, Federal Reserve Bank of St. Louis, issue May, pages 265-302.
  4. Freeman, Scott, 1999. "Rediscounting under aggregate risk," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 197-216, February.
  5. 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.
  6. Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 13-29.
  7. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
  8. Lacker, Jeffrey M., 1997. "Clearing, settlement and monetary policy," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 347-381, October.
  9. Bhattacharya, Joydeep & Haslag, Joseph H. & Martin, Antoine, 2009. "Why does overnight liquidity cost more than intraday liquidity?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1236-1246, June.
  10. Olivier Armantier & Jeffrey Arnold & James J. 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.
  11. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-1138, December.
  12. 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.
  13. 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.
  14. Scott Freeman, 2002. "Payments and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 602-617, July.
  15. James T.E. Chapman & Antoine Martin, 2013. "Rediscounting under Aggregate Risk with Moral Hazard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 651-674, 06.
  16. 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.
  17. Martin, Antoine, 2004. "Optimal pricing of intraday liquidity," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 401-424, March.
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Cited by:

  1. 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.
  2. Hajime Tomura, 2014. "Payment Instruments and Collateral in the Interbank Payment System," UTokyo Price Project Working Paper Series 032, University of Tokyo, Graduate School of Economics.
  3. Jurgilas, Marius & Zikes, Filip, 2012. "Implicit intraday interest rate in the UK unsecured overnight money market," Bank of England working papers 447, Bank of England.

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