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A dynamic model of settlement

Author

Listed:
  • Monnet, Cyril
  • Koeppl, Thorsten Volker
  • Temzelides, Ted

Abstract

We investigate the role of settlement in a dynamic model of a payment system where the ability of participants to perform certain welfare-improving transactions is subject to random and unobservable shocks. In the absence of settlement, the full information first-best allocation cannot be supported due to incentive constraints. In contrast, this allocation is supportable if settlement is introduced. This, however, requires that settlement takes place with a sufficiently high frequency. JEL Classification: E4, E5

Suggested Citation

  • Monnet, Cyril & Koeppl, Thorsten Volker & Temzelides, Ted, 2006. "A dynamic model of settlement," Working Paper Series 604, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2006604
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Intertemporal Incentives; payments; settlement;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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