EconPapers    
Economics at your fingertips  
 

Why Does Overnight Liquidity Cost More Than Intraday Liquidity?

Joydeep Bhattacharya, Joseph Haslag () and Antoine Martin

Staff General Research Papers Archive from Iowa State University, Department of Economics

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: Friedman rule; monetary policy; Overnight liquidity; intraday liquidity; random-relocation models (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Date: 2007-03-20
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Journal of Economic Dynamics and Control, June 2009, vol. 33 no. 6, pp. 1236-1246

Downloads: (external link)
http://www2.econ.iastate.edu/papers/p1760-2007-03-20.pdf (application/pdf)

Related works:
Journal Article: Why does overnight liquidity cost more than intraday liquidity? (2009) Downloads
Working Paper: Why does overnight liquidity cost more than intraday liquidity? (2009) Downloads
Working Paper: Why does overnight liquidity cost more than intraday liquidity? (2007) Downloads
Working Paper: Why does overnight liquidity cost more than intraday liquidity? (2007) Downloads
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:isu:genres:13096

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().

 
Page updated 2024-04-22
Handle: RePEc:isu:genres:13096