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| Title: | | Liquidity-saving mechanisms  |
| Authors: | | Martin, Antoine McAndrews, James |
| Issue Date: | | 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 |
| Appears in Collections: | | Staff Reports, Federal Reserve Bank of New York
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