Liquidity saving mechanisms
James McAndrews and
Antoine Martin
No 165, 2007 Meeting Papers from Society for Economic Dynamics
Abstract:
We study the incentives of participants in a real-time gross settlement with and without the addition of a liquidity saving mechanism. Participants in our model face a liquidity shock and different cost of delaying payments. They trade-off the cost of delaying a payment with 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. In particular, we find that adding one type of liquidity saving mechanism can either increase or decrease welfare depending on parameters.
Date: 2007
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Journal Article: Liquidity-saving mechanisms (2008) 
Working Paper: Liquidity-saving mechanisms (2007) 
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed007:165
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