Liquidity saving mechanisms
We study the incentives of participants in a real-time gross settlement with and without the addition of a liquidity saving mechanism. Participants in our model face a liquidity shock and different cost of delaying payments. They trade-off the cost of delaying a payment with the cost of borrowing liquidity from the central bank. The heterogeneity of participants in our model gives rise to a rich set of strategic interactions. The main contribution of our paper is to show that the design of a liquidity saving mechanism has important implications for welfare. In particular, we find that adding one type of liquidity saving mechanism can either increase or decrease welfare depending on parameters.
|Date of creation:||2007|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Martin, Antoine & McAndrews, James, 2008.
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 554-567, April.
- Antoine Martin & James J. McAndrews, 2007. "Liquidity-saving mechanisms," Staff Reports 282, Federal Reserve Bank of New York.
- Jamie McAndrews & Antoine Martin, 2007. "Liquidity saving mechanisms," 2007 Meeting Papers 165, Society for Economic Dynamics.
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- 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?," FRB Atlanta Working Paper 2000-15, Federal Reserve Bank of Atlanta.
- 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. "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.
- 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. Full references (including those not matched with items on IDEAS)
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