Production, Hidden Action, and the Payment System
In this paper, we study a model economy that can account for the distribution of payments within a day. In our model, debtors choose when to arrive at the settlement location. Concomitant with choosing their arrival, debtors are making a production decision. We assume there is a cost to arriving early; that is, late-arrival is associated with a technology that dominates early arrival/production. Second, we treat the debtor's choice as hidden from creditors. We derive conditions under which the planner allocates production to each type of agents. In the decentralized setting, there is a nonarbitrage condition that is consistent with a positive intraday rate. The central bank may be able to implement the planner's allocation with a proper intraday interest rate. In some cases, the optimal intraday rate is positive.
|Date of creation:||15 Mar 2010|
|Date of revision:|
|Publication status:||Published in Journal of Monetary Economics 2011|
|Contact details of provider:|| Postal: 118 Professional Building, Columbia, MO 65211|
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page: http://economics.missouri.edu/
More information through EDIRC
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.:
- 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.
- Joydeep Bhattacharya & Joseph H. Haslag & Antoine Martin, 2007. "Why does overnight liquidity cost more than intraday liquidity?," Staff Reports 281, Federal Reserve Bank of New York.
- Bhattacharya, Joydeep & Haslag, Joseph & Martin, Antoine, 2007. "Why Does Overnight Liquidity Cost More Than Intraday Liquidity?," Staff General Research Papers Archive 13096, Iowa State University, Department of Economics.
- 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.
- David C. Mills, Jr, 2004. "Mechanism Design and the Role of Enforcement in Freeman's Model of Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 219-236, january.
- Scott Freeman, 2002. "Payments and Output," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 602-617, July.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Lacker, Jeffrey M., 1997.
"Clearing, settlement and monetary policy,"
Journal of Monetary Economics,
Elsevier, vol. 40(2), pages 347-381, October.
- Antoine Martin, 2002.
"Optimal pricing of intra-day liquidity,"
Research Working Paper
RWP 02-02, Federal Reserve Bank of Kansas City.
- Green, Edward-J, 1997.
"Money and Debt in the Structure of Payments,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(1), pages 63-87, May.
- 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.
- Olivier Armantier & Jeffrey Arnold & James J. McAndrews, 2008. "Changes in the timing distribution of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-112.
- Antoine Martin, 2008. "Reconciling Bagehot with the Fed's response to September 11," Staff Reports 217, Federal Reserve Bank of New York.
- James T. E. Chapman & Antoine Martin, 2007.
"Rediscounting under aggregate risk with moral hazard,"
296, Federal Reserve Bank of New York.
- 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, 06.
- James T. E. Chapman & Antoine Martin, 2007. "Rediscounting Under Aggregate Risk with Moral Hazard," Staff Working Papers 07-51, Bank of Canada.
- Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
- Williamson, Stephen D. & Wright, Randall, 2010.
"New Monetarist Economics: Methods,"
21486, University Library of Munich, Germany.
- Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-38, December.
- ANTOINE MARTIN & JAMES McANDREWS, 2010.
"Should There Be Intraday Money Markets?,"
Contemporary Economic Policy,
Western Economic Association International, vol. 28(1), pages 110-122, 01.
- Freeman, Scott, 1999. "Rediscounting under aggregate risk," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 197-216, February.
When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:1004. 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: (Valerie Kulp)
If references are entirely missing, you can add them using this form.