The intraday liquidity management game

Bech, Morten L.; Garratt, Rod

doi:10.1016/s0022-0531(03)00016-4

Cited by 146 publications

(101 citation statements)

References 6 publications

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“…Even if all IOUs are settled with goods, outside money is still valued because old debtors trade with young debtors in the same spirit as in the overlapping generations tradition; that is, money possesses the …nality property as the means to execute intergenerational transfers. 3 Three major results are derived. The …rst major result is derived in the context of the decentralized economy.…”

Section: Introductionmentioning

confidence: 99%

Production, hidden action, and the payment system

Guzman

Haslag

2011

Journal of Monetary Economics

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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 in which the planner allocate production to each type. In the decentralized setting, there is an arbitrage 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 intraday rate is positive.

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Section: Introductionmentioning

confidence: 99%

Production, hidden action, and the payment system

Guzman

Haslag

2011

Journal of Monetary Economics

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“…McAndrews and Rajan (2000), Bech and Garratt (2003) and McAndrews and Potter (2002)) advocate interpreting the payment decisions of banks participating in Fedwire as a game. McAndrews and Rajan argue that the timing of payments resembles a coordination game.…”

Section: Introductionmentioning

confidence: 99%

Illiquidity in the Interbank Payment System Following Wide-Scale Disruptions

Bech

Garratt

2006

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe show how the interbank payment system can become illiquid following wide-scale disruptions. Two forces are at play in such disruptions-operational problems and changes in participants' behavior. We model the interbank payment system as an n-player game and utilize the concept of a potential function to describe the process by which one of multiple equilibria emerges after a wide-scale disruption. If the disruption is large enough, hits a key geographic area, or hits a "too-big-to-fail" participant, then the coordination of payment processing can break down, and central bank intervention might be required to reestablish the socially efficient equilibrium. We also explore how the network topology of the underlying payment flow among banks affects the resiliency of coordination. The paper provides a theoretical framework to analyze the effects of events such as the September 11 attacks.

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“…We further assume that claims on one island's consumption good are not transferable to the other island. In contrast, some agents may 3 See Bhattacharya, Haslag, and Martin (2005) and the references therein. 4 Our paper is also related to recent attempts to study optimal monetary policy in environments with hidden e¤ort such as da Costa and Werning (2003) and Golosov, Kocherlakota, and Tsyvinski (2003).…”

Section: The Environmentmentioning

confidence: 99%

“…Angelini (1998), and Bech and Garratt (2003) argue that a high cost of intraday liquidity can lead to costly delay of payments. Zhou (2000) and Martin (2004) argue that a low cost of liquidity provides risk-sharing when payments needs are random.…”

Section: Introductionmentioning

confidence: 99%

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Why does overnight liquidity cost more than intraday liquidity?

Bhattacharya

Haslag

Martin

2009

Journal of Economic Dynamics and Control

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In this paper, we argue that the observed difference in the cost of intraday and overnight liquidity is part of an optimal payments system design. In our environment, overnight liquidity affects output while intraday liquidity affects only the distribution of resources between money holders and non-money holders. The low cost of intraday liquidity is explained by the Friedman rule. The optimal cost differential achieves the twin objective of reducing the incentive to overuse money at night and encouraging payment-risk sharing during the day. KeywordsFriedman rule, monetary policy, overnight liquidity, intraday liquidity, random-relocation models AbstractIn this paper, we argue that the observed di¤erence in the cost of intraday and overnight liquidity is part of an optimal payments system design. In our environment, the interest charged on overnight liquidity a¤ects output while the cost of intraday liquidity only a¤ects the distribution of resources between money holders and non-money holders. The low cost of intraday liquidity follows from the Friedman rule and it is optimal to deviate from the the Friedman rule with respect to overnight liquidity. The cost di¤erential simultaneously reduces the incentive to overuse money and encourages risk sharing.

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The intraday liquidity management game

Cited by 146 publications

References 6 publications

Production, hidden action, and the payment system

Production, hidden action, and the payment system

Illiquidity in the Interbank Payment System Following Wide-Scale Disruptions

Why does overnight liquidity cost more than intraday liquidity?

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