Download now Free registration required
This paper lays out and simulates a multi-agent, multi-period model of an RTGS payment system. At the beginning of the day, banks choose how much costly liquidity to allocate to the settlement process. Then, they use it to execute an exogenous, random stream of payment orders. If a bank's liquidity stock is depleted, payments are queued until new liquidity arrives from other banks, imposing costs on the delaying bank. The paper studies the equilibrium level of liquidity posted in the system, performing some comparative statics and obtaining: a liquidity demand curve which links liquidity to delay costs and insights on the efficiency of alternative system configurations.
- Format: PDF
- Size: 985.8 KB