Why does overnight liquidity cost more than intraday liquidity?

Joydeep Bhattacharya, Joseph Haslag and Antoine Martin

Journal of Economic Dynamics and Control, 2009, vol. 33, issue 6, 1236-1246

Abstract: 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.

Keywords: Overnight; liquidity; Intraday; liquidity; Friedman; rule; Monetary; policy; Random-relocation; models (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165-1889(08)00214-5
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Why does overnight liquidity cost more than intraday liquidity? (2009)
Working Paper: Why does overnight liquidity cost more than intraday liquidity? (2007)
Working Paper: Why Does Overnight Liquidity Cost More Than Intraday Liquidity? (2007)
Working Paper: Why does overnight liquidity cost more than intraday liquidity? (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:6:p:1236-1246

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().