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Author:McAndrews, James J. 

Discussion Paper
If Interest Rates Go Negative . . . Or, Be Careful What You Wish For

The United States has slid into eight recessions in the last fifty years. Each time, the Federal Reserve sought to revive economic activity by reducing interest rates (see chart below). However, since the end of the last recession in June 2009, the economy has continued to sputter even though short-term rates have remained near zero. The weak recovery has led some commentators to suggest that the Fed should push short-term rates even lower?below zero?so that borrowers receive, and creditors pay, interest.
Liberty Street Economics , Paper 20120829

Precautionary reserves and the interbank market

Liquidity hoarding by banks and extreme volatility of the fed funds rate have been widely seen as severely disrupting the interbank market and the broader financial system during the 2007-08 financial crisis. Using data on intraday account balances held by banks at the Federal Reserve and Fedwire interbank transactions to estimate all overnight fed funds trades, we present empirical evidence on banks' precautionary hoarding of reserves, their reluctance to lend, and extreme fed funds rate volatility. We develop a model with credit and liquidity frictions in the interbank market consistent ...
Staff Reports , Paper 370

A study of competing designs for a liquidity-saving mechanism

We study two designs for a liquidity-saving mechanism (LSM), a queuing arrangement used with an interbank settlement system. We consider an environment where banks are subjected to liquidity shocks. Banks must make the decision to send, queue, or delay their payments after observing a noisy signal of the shock. With a balance-reactive LSM, banks can set a balance threshold below which payments are not released from the queue. Banks can choose their threshold such that the release of a payment from the queue is conditional on the liquidity shock. With a receipt-reactive LSM, a payment is ...
Staff Reports , Paper 336

A general equilibrium analysis of check float

Households and businesses in the U.S. prefer to use check payment over less costly, electronic means of payment. Earlier studies have focused on check ?float,? i.e., the time lag between receipt and clearing, as a potential explanation for the continued popularity of checks. An underlying assumption of these studies is that check float operates as a pure transfer from payee to payor. ; We construct a simple general equilibrium model in which payments are made by check. In general equilibrium, check float need not act as a transfer. If float can be priced into market transactions, then it has ...
Staff Reports , Paper 84

Working Paper
Worker debt with bankruptcy

Working Papers , Paper 91-2

Working Paper
Settlement risk under gross and net settlement

Previous comparative analyses of gross and net settlement have focused on the credit risk of the central counterparty in net settlement arrangements and on the incentives for participants to alter the risk of the portfolio under net settlement. By modeling the trading economy that generates the demand for payment services, we are able to show some largely unexplored advantages of net settlement. We find that net settlement can prevent certain gridlock situations, which may arise in gross settlement in the absence of delivery versus payment requirements. In addition, we show that net ...
FRB Atlanta Working Paper , Paper 99-10

Working Paper
Network externalities and shared electronic banking network adoption

Working Papers , Paper 93-18

Journal Article
Stability of funding models: an analytical framework

With the recent financial crisis, many financial intermediaries experienced strains created by declining asset values and a loss of funding sources. In reviewing these stress events, one notices that some arrangements appear to have been more stable?that is, better able to withstand shocks to their asset values and/or funding sources?than others. Because the precise determinants of this stability are not well understood, gaining a better grasp of them is a critical task for market participants and policymakers as they try to design more resilient arrangements and improve financial regulation. ...
Economic Policy Review , Issue Feb , Pages 29-47

Journal Article
Where has all the paper gone? Book-entry delivery-against-payment systems

Business Review , Issue Nov , Pages 19-30

Working Paper
Banks, payments, and coordination

Working Papers , Paper 94-20


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