Journal Article
Estimates of scale and cost efficiency for Federal Reserve currency operations
Abstract: Meeting the currency demands of depository institutions, businesses, and consumers costs the Federal Reserve more than half a billion dollars each year, yet, very little research has been devoted to understanding what factors affect such costs. The authors estimate a cost function in order to obtain estimates of scale and cost efficiency for this service. They find that as in other paper-based technologies, such as checks, scale economies are achieved at a relatively low level of output, implying that currency services are not a natural monopoly. They also provide estimates of facility-specific marginal costs and returns to scale measures that could be used to improve resource allocations. Lastly, they find that the average processing facility operates at more 80 percent of the efficiency of the ?best practice? facility, comparable to cost efficiency estimates that have been reported elsewhere for private-sector financial institutions.
Access Documents
File(s): File format is text/html http://www.clevelandfed.org/research/Review/2001/scale.pdf
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Cleveland
Part of Series: Economic Review
Publication Date: 2001
Issue: Q IV
Pages: 2-26