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Journal Article
Central banking and the economics of information
This article concerns the potential relevance of information technology to three aspects of central banking: setting the objectives of monetary policy, ensuring the integrity and security of financial system infrastructure, and maintaining the transparency of decision-making. Regarding integrity and security of infrastructure, a revised role for central banks may be appropriate. However, recent innovations in technology and advances in learning confirm the wisdom of central banks' efforts to control inflation and maintain their own transparency.
Journal Article
Electronic bill presentment and payment--is it just a click away?
This article addresses the following questions about electronic presentment and payment (EBPP) in the business-to-consumer marketplace: Why aren't electronically presented bills always paid electronically? And, if EBPP does aid in the migration to fully electronic end-to-end payment, what are the barriers to its adoption.
Journal Article
Money and debt in the structure of payments
In Scott Freeman?s (1996) model, payment system arrangements based on intermediated debt that is settled with money achieve higher welfare than does direct money payment. In a simplified version of Freeman?s model, welfare can be further improved and efficiency achieved by a monetary authority participating in a secondary market for debt or by a private intermediary using a common clearinghouse device. The analysis clarifies that ordinary private agents can assume the role of central bank or clearinghouse; no artificial agent, posited solely to play that role and endowed with special ...
Working Paper
Sharing the risk of settlement failure
Two policies toward payments-system risk are common, but superficially appear to be contradictory. One policy is to restrict the exposure to risk generated by one participant to other participants who are, by one measure or another, directly concerned with the risky participant. The other policy is to provide a ?safety net,? typically provided by government and funded by taxes collected from all participants and even from non-participants, to share losses due to ?systemic risk.? In this paper, we provide a model in which both of these policies can be constituents of an economically efficient ...
Working Paper
Will the new $100 bill decrease counterfeiting?
A current U.S. policy is to introduce a new style of currency that is harder to counterfeit, but not immediately to withdraw from circulation all of the old-style currency. This policy is analyzed in a random-matching model of money, and its potential to decrease counterfeiting in the long run is shown. For various parameters of the model, three types of equilibria are found to occur. In only one does counterfeiting continue at its initial high level. In the other two, both genuine and counterfeit old-style money go out of circulation - immediately in one and gradually in the other. There are ...
Journal Article
Will the new $100 bill decrease counterfeiting?
A current U.S. policy is to introduce a new style of currency that is harder to counterfeit, but not immediately to withdraw from circulation all of the old-style currency. This policy is analyzed in a random matching model of money, and its potential to decrease counterfeiting in the long run is shown. For various parameters of the model, three types of equilibria are found to occur. In only one does counterfeiting continue at its initial high level. In the other two, both genuine and counterfeit old-style money go out of circulation?immediately in one and gradually in the other. There are ...
Journal Article
On the emergence of parliamentary government: the role of private information
The way many dictators have been deposed in the 20th century resembles the way a parliamentary form of government emerged in 13th-century England. This medieval example is worth examining because the features that led to its political reform are particularly clear. Despite what many think, that reform cannot be understood simply as a shift in military power from ruler to subjects. Rather, understanding the reform requires understanding that the English king had recently acquired private information crucial to his subjects. Such private information became important after England lost Normandy ...
Journal Article
Formulating the imputed cost of equity capital for priced services at Federal Reserve banks
This paper was presented at the conference "Economic Statistics: New Needs for the Twenty-First Century," cosponsored by the Federal Reserve Bank of New York, the Conference on Research in Income and Wealth, and the National Association for Business Economics, July 11, 2002. According to the 1980 Monetary Control Act, the Federal Reserve Banks must establish fees for their priced services to recover all operating costs as well as the imputed costs of capital and taxes that would be incurred by a profit-making firm. Since 2002, the Federal Reserve has made fundamental changes to the ...
Working Paper
Price level uniformity in a random matching model with perfectly patient traders
This paper shows that one of the defining features of Walrasian equilibrium---law of one price---characterizes equilibrium in a non-Walrasian environment of (1) random trade matching without double coincidence of wants, and (2) strategic, price-setting conduct. Money is modeled as perfectly divisible and there is no constraint on agents' money inventories. In such an environment with discounting, the endogenous heterogeneity of money balances among agents implies differences in marginal valuation of money between distinct pairs of traders, which raises the question whether decentralized trade ...
Working Paper
The Federal Reserve banks' imputed cost of equity capital
According to the Monetary Control Act of 1980, the Federal Reserve Banks must establish fees for their priced services to recover all operating costs as well as imputed costs of capital and taxes that would be incurred by a profit-making firm. The calculations required to establish these imputed costs are referred to collectively as the Private Sector Adjustment Factor (PSAF). In this paper, we propose a new approach for calculating the cost of equity capital used in the PSAF. The proposed approach is based on a simple average of three methods as applied to a peer group of bank holding ...