Policy Coordination in an International Payment System
Given the increasing interdependence of both financial systems and attendant payment and settlement systems a vital question is what form should optimal policy take when there are two connected payment systems with separate regulators. In this paper I show that two central banks operating in a non-cooperative way will not have an incentive to achieve the optimal allocation of goods. I further show that this non-cooperative outcome will be supported by a zero intraday interest rate and constant fixed exchange rate. This is in contrast to recent research; which has shown that domestically a zero intraday interest rate will achieve a social optimum and that the central bank has an incentive to achieve it.
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- Martin, Antoine, 2004.
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- Tapking, Jens & Yang, Jing, 2004. "Horizontal and vertical integration and securities trading and settlement," Working Paper Series 0387, European Central Bank.
- Ruilin Zhou, 2000. "Understanding intraday credit in large-value payment systems," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 29-44.
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- Fujiki, Hiroshi, 2003. "A model of the Federal Reserve Act under the international gold standard system," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1333-1350, September.
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