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Monetary Policy Implementation and Payment System Modernization

Author

Listed:
  • Jonathan Witmer

    (Bank of Canada)

Abstract

24/7 payment settlement may affect the demand for central bank reserves and thus could have an effect on monetary policy implementation. By modifying the standard workhorse model of monetary policy implementation (Poole 1968), we show that 24/7 payment settlement induces a precautionary demand for central bank reserves. Absent any changes or response by the central bank, this will put upward pressure on the overnight interest rate in frameworks with a low level of reserves.

Suggested Citation

  • Jonathan Witmer, 2023. "Monetary Policy Implementation and Payment System Modernization," International Journal of Central Banking, International Journal of Central Banking, vol. 19(3), pages 325-357, August.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:3:a:8
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    References listed on IDEAS

    as
    1. William Poole, 1968. "Commercial Bank Reserve Management In A Stochastic Model: Implications For Monetary Policy," Journal of Finance, American Finance Association, vol. 23(5), pages 769-791, December.
    2. Bech, Morten L. & Klee, Elizabeth, 2011. "The mechanics of a graceful exit: Interest on reserves and segmentation in the federal funds market," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 415-431.
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    More about this item

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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