Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53896
Authors: 
Chapman, James T. E.
Year of Publication: 
2008
Series/Report no.: 
Bank of Canada Working Paper 2008,17
Abstract: 
Given the increasing interdependence of both financial systems and attendant payment and settlement systems a vital question is what form should optimal policy take when there are two connected payment systems with separate regulators. In this paper I show that two central banks operating in a non-cooperative way will not have an incentive to achieve the optimal allocation of goods. I further show that this non-cooperative outcome will be supported by a zero intraday interest rate and constant fixed exchange rate. This is in contrast to recent research; which has shown that domestically a zero intraday interest rate will achieve a social optimum and that the central bank has an incentive to achieve it.
Subjects: 
Payment, clearing, and settlement systems
Exchange rate regimes
Document Type: 
Working Paper

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