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A Model of Tiered Settlement Networks

  • James Chapman
  • Jonathan Chiu
  • Miguel Molico

This paper develops a model of settlement system to study the endogenous structure of settlement networks, and the welfare consequences of clearing agent failure. The equilibrium degree of tiering is endogenously determined by the cost structure and the information structure. The degree of tiering is decreasing in the fixed cost of operating the second-tier network and the availability of public credit history. Furthermore, the welfare effects of clearing agent failure can be decomposed into operational inefficiency and the loss of private information.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp08-12.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 08-12.

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Length: 43 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bca:bocawp:08-12
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Web page: http://www.bank-banque-canada.ca/

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  1. 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.
  2. Alexandra Lai & Nikil Chande & Sean O'Connor, 2006. "Credit in a Tiered Payments System," Working Papers 06-36, Bank of Canada.
  3. William Roberds & Charles M. Kahn, 2004. "Payments Settlement under Limited Enforcement: Private versus Public Systems," Econometric Society 2004 North American Winter Meetings 13, Econometric Society.
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