Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60524
Authors: 
Martin, Antoine
McAndrews, James
Year of Publication: 
2007
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 282
Abstract: 
We study the incentives of participants in a real-time gross settlement system with and without the addition of a liquidity-saving mechanism (queue). Participants in our model face a liquidity shock and different costs for delaying payments. They trade off the cost of delaying a payment against 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, even in the absence of netting. In particular, we find that parameters will determine whether the addition of a liquiditysaving mechanism increases or decreases welfare.
Subjects: 
liquidity-saving mechanism, real-time gross settlement, large-value payment systems
JEL: 
E42
E58
G21
Document Type: 
Working Paper

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