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Should there be intraday money markets?

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  • Antoine Martin
  • James J. McAndrews

Abstract

In this paper, we consider the case for an intraday market for reserves. We discuss the separate roles of intraday and overnight reserves and argue that an intraday market could be organized in the same way as the overnight market. We present arguments for and against a market for intraday reserves when the marginal cost of overnight reserves is positive. We also consider how reserves should be supplied when the cost of overnight reserves is zero. In that case, the distinction between overnight and intraday reserves becomes blurred, raising an important question: What is the role of the overnight market?

Suggested Citation

  • Antoine Martin & James J. McAndrews, 2008. "Should there be intraday money markets?," Staff Reports 337, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:337
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    References listed on IDEAS

    as
    1. 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.
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    7. 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, June.
    8. Lacker, Jeffrey M., 1997. "Clearing, settlement and monetary policy," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 347-381, October.
    9. Bhattacharya, Joydeep & Haslag, Joseph H. & Martin, Antoine, 2009. "Why does overnight liquidity cost more than intraday liquidity?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1236-1246, June.
    10. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
    11. Freeman, Scott, 1999. "Rediscounting under aggregate risk," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 197-216, February.
    12. Martin, Antoine, 2004. "Optimal pricing of intraday liquidity," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 401-424, March.
    13. 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.
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    16. Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Spr), pages 13-29.
    17. Charles M. Kahn & William Roberds, 1999. "The design of wholesale payments networks: the importance of incentives," Economic Review, Federal Reserve Bank of Atlanta, vol. 84(Q3), pages 30-39.
    18. Angelini, Paolo, 2000. "Erratum [Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market]," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 442-442, August.
    19. Stacy Panigay Coleman, 2002. "The Evolution of the Federal Reserve's Intraday Credit Policies," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 88(2), pages .67-84, February.
    20. Kahn, Charles M. & Roberds, William, 2001. "Real-time gross settlement and the costs of immediacy," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 299-319, April.
    21. William C. Whitesell, 2006. "Monetary policy implementation without averaging or rate corridors," Finance and Economics Discussion Series 2006-22, Board of Governors of the Federal Reserve System (U.S.).
    22. James J. McAndrews, 2006. "Alternative arrangements for the distribution of intraday liquidity," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 12(Apr).
    23. Leonardo Bartolini & Svenja Gudell & R. Spence Hilton & Krista B. Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 11(Nov).
    24. Brian Madigan & William R. Nelson, 2002. "Proposed Revision to the Federal Reserve's Discount Window Lending Programs," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 88(7), pages .313-319, July.
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    Cited by:

    1. Gu, Chao & Guzman, Mark & Haslag, Joseph, 2011. "Production, hidden action, and the payment system," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 172-182, March.
    2. Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, August.
    3. Julio J. Rotemberg, 2011. "Minimal Settlement Assets in Economies with Interconnected Financial Obligations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 81-108, February.
    4. Julio J. Rotemberg, 2011. "Minimal Settlement Assets in Economies with Interconnected Financial Obligations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(1), pages 81-108, February.
    5. Jurgilas, Marius & Zikes, Filip, 2012. "Implicit intraday interest rate in the UK unsecured overnight money market," Bank of England working papers 447, Bank of England.
    6. Jurgilas, Marius & Žikeš, Filip, 2014. "Implicit intraday interest rate in the UK unsecured overnight money market," Journal of Financial Intermediation, Elsevier, vol. 23(2), pages 232-254.
    7. James Chapman & Jonathan Chiu & Miguel Molico, 2011. "Central bank haircut policy," Annals of Finance, Springer, vol. 7(3), pages 319-348, August.

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    More about this item

    Keywords

    Bank reserves; Money market; Banks and banking; Central;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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