LVTS, the Overnight Market, and Monetary Policy

Nadja Kamhi

Staff Working Papers from Bank of Canada

Abstract: Operational events in the Large Value Transfer System (LVTS) almost always result in a disturbance of the regular flow of payments. The author explores the link between payment flows and the overnight interest rate. She also explores the way that payments system frictions affect the overnight interest rate. Payments system frictions arise because LVTS participants lack full information on their own payment flows and those of others. This uncertainty diminishes as the final end-of-day settlement nears. By borrowing earlier in the day in the overnight market, however, participants can insure against being short at the final end-of-day settlement. The author first develops a general framework describing the role that payment flows and payments system frictions have on the overnight rate and then empirically tests the implications of this model. She finds that LVTS payment flows are an important determinant of pressure on the overnight interest rate.

Keywords: Payment clearing and settlement systems; Monetary policy implementation (search for similar items in EconPapers)
JEL-codes: E5 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-15

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