The welfare effects of a liquidity-saving mechanism
This paper considers the welfare effect of introducing a liquidity-saving mechanism (LSM) in a real-time gross settlement (RTGS) payment system. We study the planner's problem to get a better understanding of the economic role of an LSM and find that an LSM can achieve the planner's allocation for some parameter values. The planner's allocation cannot happen without an LSM, as long as some payments can be delayed without cost. We show that, in equilibrium with an LSM, there can be either too few or too many payments settled early compared with the planner's allocation, depending on the parameter values. Using Fedwire data to calibrate our model, we describe the equilibrium that would arise with an LSM and compare welfare with and without an LSM. Our results suggest that introducing an LSM could have significant benefits.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.ny.frb.org/rmaghome/staff_rp/ Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin, Antoine & McAndrews, James, 2008.
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 554-567, April.
- Mills Jr., David C. & Nesmith, Travis D., 2008.
"Risk and concentration in payment and securities settlement systems,"
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 542-553, April.
- David C. Mills, Jr. & Travis D. Nesmith, 2007. "Risk and concentration in payment and securities settlement systems," Finance and Economics Discussion Series 2007-62, Board of Governors of the Federal Reserve System (U.S.).
- Bech, Morten L. & Garratt, Rod, 2003.
"The intraday liquidity management game,"
Journal of Economic Theory,
Elsevier, vol. 109(2), pages 198-219, April.
- Bech, Morten L. & Garratt, Rod, 2001. "The Intraday Liquidity Management Game," University of California at Santa Barbara, Economics Working Paper Series qt0m6035wg, Department of Economics, UC Santa Barbara.
- Angelini, Paolo, 2000. "Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 54-73, February.
- Kahn, Charles M. & Roberds, William, 2001.
"The CLS bank: a solution to the risks of international payments settlement?,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 54(1), pages 191-226, June.
- Charles M. Kahn & William Roberds, 2000. "The CLS Bank: a solution to the risks of international payments settlement?," Working Paper 2000-15, Federal Reserve Bank of Atlanta.
- Morten L. Bech & Bart Hobijn, 2006.
"Technology diffusion within central banking: the case of real-time gross settlement,"
260, Federal Reserve Bank of New York.
- Morten L. Bech & Bart Hobijn, 2007. "Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 147-181, September.
- Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
- Kurt Johnson & James J. McAndrews & Kimmo Soramaki, 2004. "Economizing on liquidity with deferred settlement mechanisms," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-72.
When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:331. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber)
If references are entirely missing, you can add them using this form.