Working Paper

Scale economies, cost efficiencies, and technological change in Federal Reserve payments.

Abstract: This paper uses a stochastic cost frontier to examine the scale economies, cost efficiencies, and technological change of three payments instruments--check, automated clearinghouse (ACH) transfers, and Fedwire processing--provided by the Federal Reserve over the period 1990-94. We find evidence of substantial scale economies and cost inefficiencies in the ACH and Fedwire services. Check processing also exhibits substantial cost inefficiency, but constant returns to scale. Technological progress is found to be sizeable for ACH and Fedwire; check processing is found to have experienced technological "regress," probably because of a decrease in processing volume over the sample period.

Keywords: Payment systems; Checks; Clearinghouses (Banking); Fedwire;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Financial Services working paper

Publication Date: 1996

Number: 96-01