why does overnight liquidity cost more than intraday liquidity abstract in this paper we argue that the observed difference in the cost of intraday and overnight liquidity is part of an optimal payments system design in our environment overnight liquidity affects output while intraday liquidity affects only the distribution of resources between money holders and non money holders the low cost of intraday liquidity is explained by the friedman rule the optimal cost differential achieves the twin objective of reducing the incentive to overuse money at night and encouraging payment risk sharing during the day

e government internet adoption and corruption an empirical investigation abstract this study empirically investigates the impact of e government and internet adoption on curbing corruption by utilizing a large panel dataset the results reveal that e government is a powerful tool in reducing corruption via telecommunication infrastructure and the scope and quality of online services which is strengthened by greater internet adoption the interaction effects between e government and internet adoption suggest both as complements in anti corruption programs a dynamic panel data model that addresses the endogeneity problem and considers corruption persistency is employed results of panel granger causality tests indicate a unidirectional causality from e government to corruption while a bilateral causality between internet adoption and corruption

liquidity risk and policy options abstract on the basis of a liquidity management model liquidity risks defined as the probability of payment failures in a real time gross settlement rtgs payment system may either stem from liquidity management inefficiencies or insufficient cash balances i will show that penalties charged on the amount of payment failures minimise liquidity risks without interfering with the bank s technology preferences i will instead show that liquidity requirements although as effective as penalties to contain the risk of liquidity shortage may distort the bank s technology preferences and cannot stem liquidity management inefficiencies i will also show that liquidity risks within rtgs payment systems are potentially smaller because they depend more on the liquidity management efficiency than on the randomness of cash inflows and outflows

cereal marketing liberalization in tanzania abstract there is considerable evidence that cereal market liberalization in tanzania has been a success in spite of poor roads shortage of capital and vehicles and lack of market infrastructure and standardized measures the legal status of the private sector is unclear however and public sector policies still favour a heavy official involvement in the marketing system farm gate prices for maize fall off rapidly as one moves away from the primary marketing centres but on farm storage of maize poses farmers no insuperable difficulties successful implementation of liberalization calls for clarity and consistency in government policy the reform of financial services the sale of unused storage capacity to the private sector the more active involvement of farmers in the liberalized system the strengthening of extension services and a policy for regulating interannual price variations

is the relationship between financial development and economic growth monotonic evidence from a sample of middle income countries summary we revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980 2008 period using pooled mean group estimations in a dynamic heterogeneous panel setting we show that there is an inverted u shaped relationship between finance and growth in the long run in the short run the relationship is insignificant this suggests that too much finance can exert a negative influence on growth in middle income countries the finding of a non monotonic effect of financial development on growth is confirmed by estimating a threshold model

identifying relationship lending in the interbank market a network approach abstract relationship lending is broadly interpreted as a strong partnership between a lender and a borrower nevertheless we still lack consensus regarding how to quantify the strength of a lending relationship while simple statistics such as the frequency and volume of loans have been used as proxies in previous studies here we propose statistical tests to identify relationship lending as a significant tie between banks application of the proposed method to the italian interbank networks reveals that the fraction of relationship lending among all bilateral trades has been quite stable and that the relationship lenders tend to impose high interest rates at the time of financial distress

precautionary reserves and the interbank market large excess reserve balances are held by banks in the u s despite the ability of large banks to closely target end of day balances close to zero we show that the friction faced by small banks to participate in the fed funds market leads to all banks holding precautionary reserves the precautionary motive for reserves can explain that small banks hold relatively large amounts of excess reserves overnight while at the same time lending large amounts to large banks small banks are large net lenders despite their reluctance to lend as large of a percentage of available balances during the day as large banks we also explain an increase in the volatility of the fed funds rate late in the day

analyzing alternative intraday credit policies in real time gross settlement systems this paper examines a central bank s choice of intraday credit policy for real time gross settlement systems formal analysis of central bank objectives and commercial bank payment activity provides insight into both the choice and effects of several possible intraday credit policies observed intraday credit policies are interpreted within the context of the model among g 10 central banks different combinations of prices collateral and quantity limits have been chosen to manage the supply of intraday credit conditions that rationalize these choices are shown to rely on central bank preferences regarding credit risk and systemic risk liquidity management technologies and the cost of collateral

the intraday liquidity management game abstract we use a game theoretical framework to analyze the intraday behavior of banks with respect to settlement of interbank claims in a real time gross settlement setting the game played by banks depends upon the intraday credit policy of the central bank and it encompasses two well known game theoretical paradigms the prisoner s dilemma and the stag hunt the former arises in a collateralized credit regime where banks have an incentive to postpone payments when daylight liquidity is costly an outcome that is socially inefficient the latter arises in a priced credit regime where the postponement of payments can be socially efficient banks are risk neutral but we show that most of the results are unaffected by risk aversion

the intraday price of money evidence from the e mid interbank market we provide empirical evidence based on tick by tick data for the e mid euro area interbank market covering 2003 and 2004 that the overnight interest rate shows a clear downward pattern throughout the operating day thus a positive hourly interest rate half basis point implicitly emerges from the intraday term structure of the overnight rate such a pattern was not detected in the mid 1990s we explain this evolution as an outcome of the recent trend toward real time settlement the estimated intraday interest rate is lower than in the united states this is due to the different cost of central bank daylight credit

variations in market liquidity and the intraday interest rate most central banks offer banks participating in large value real time gross settlement rtgs systems a free intraday overdraft facility to discourage banks from actively managing their daylight liquidity in this paper we ask whether this facility has kept the intraday interest rate at zero using a unique transaction level data set on collateralized interbank loans for 2006 12 we find that during periods of financial distress rates for morning transactions are higher than those in the afternoon moreover this intraday rate correlates with market liquidity suggesting that rates contain a liquidity premium this intraday pattern is reduced but not eliminated by the eurosystem s accommodative liquidity provision

price transmission and trader entry in domestic commodity markets abstract using detailed data from three simultaneous surveys of producers traders and exporters this paper examines the transmission of international coffee prices through the domestic value chain in uganda we find that producer price fluctuations are inconsistent with constant transaction costs we investigate three possible explanations for this finding storage and contango marketing costs that increase with price and trader entry that raises search time we test and reject the storage and marketing costs explanation but we find some evidence of trader entry in response to a rise in export price our findings suggest that small itinerant traders enter in response to an export price increase probably taking advantage of farmers ignorance of the rise in wholesale price

energy consumption and economic growth in the next 11 countries the bootstrapped autoregressive metric causality approach abstract departing from previous literature using bootstrapped autoregressive metric causality approach which is more robust against non stationarity and break problems than lag augmented tests this study analyzes causal relation between economic growth and energy consumption in the next 11 countries estimating a trivariate model consisting of gdp per capita energy consumption per capita and gross capital formation it was found that the neutrality hypothesis is valid for all of the countries except for turkey these findings imply that energy conservation oriented policies should be implemented in bangladesh egypt indonesia iran korea mexico pakistan and philippines in the case of turkey a unidirectional causal nexus was found from energy consumption to economic growth since the growth hypothesis is valid energy conservation policy poses an obstacle for economic growth in turkey

broadband penetration and economic growth nexus evidence from cross country panel data this article investigates whether there are granger causal relationships between broadband penetration degree of urbanization foreign direct investment and economic growth using a panel data set covering the g 20 countries for the period 1998 2011 using our multivariate framework we first find that all of the variables are cointegrated our findings further reveal a network of causal connections between the variables including short run bidirectional causality between broadband penetration and economic growth among the more developed countries within the g 20 on the other hand for the developing countries within the g 20 there is evidence of unidirectional causality from economic growth to broadband penetration

the direction of causality between financial development and economic growth abstract this paper employs the geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth the paper finds that 1 financial development generally leads to economic growth 2 the granger causality from financial development to economic growth and the granger causality from economic growth to financial development coexist 3 financial deepening contributes more to the causal relationships in the developing countries than in the industrial countries 4 the longer the sampling interval the larger the effect of financial development on economic growth 5 financial deepening propels economic growth through both a more rapid capital accumulation and productivity growth with the latter channel being the strongest

daytime is money based on real time trade data from the swiss franc overnight interbank repo market and six interbank clearing sic the swiss real time gross settlement rtgs system we are able to gain valuable insights on the daytime value of money and its determinants first an implicit hourly interbank interest rate can be derived from the intraday term structure of the overnight rate we thereby provide evidence that an implicit intraday money market exists second we show that after the introduction of the foreign exchange settlement system cls the value of intraday liquidity has increased during the hours of the cls settlement cycle third the turnover as well as the liquidity in sic influence the intraday rate correspondingly these facts provide evidence for the cost of immediacy features like rtgs delivery versus payment and payment versus payment substitute credit risk with liquidity risk which in turn increases the value of intraday liquidity the analysis is central bank policy relevant insofar as different designs of intraday liquidity facilities and different collateral policies result in different intraday term structures for the overnight money market

food market reform the changing role of the state abstract the liberalization and privatization of food markets has been an important feature of economic reform programmes in many developing countries and donor conditionality has been applied to this end however the agenda needs to move beyond this to the establishment of efficient and equitable marketing systems a major constraint on this has been the weak base of theoretical and empirical knowledge about the characteristics of food markets on which reform programmes have been built three principal areas are identified where further research policy experimentation and sharing of experience are required the role of the state in relation to collective action by market participants the problem of food price instability and the delivery of support to the small scale private sector that has taken over many marketing functions

trade taxes and tribute market liberalizations and the new importers in west africa this paper examines dynamics of state business relations in the era of trade liberalization in senegal and cote d ivoire it challenges the orthodox view that replacing nontariff barriers such as licenses and quotas with tariffs depoliticizes trade reduces commercial rent seeking activities and creates a level playing field which will encourage underground activities to surface allowing the state to capture more revenue the paper illustrates that liberalization failed to suppress commercial rent seeking helped to encourage the ascendancy of new politically connected merchant groups the mourides in senegal and the lebanese in cote d ivoire and to some degree increased tax evasion leading to the further erosion of state revenue flows the cases show that trade centered rentierism is rooted in structural features of these west african economies

agricultural marketing and pricing reform a review of experience abstract south africa like many other countries has in the past pursued a highly interventionist policy in agricultural marketing and pricing but has recently embarked on a process of at least partial liberalization the paper reviews the reasons for nature of and impact of marketing reform in sub saharan africa and elsewhere it concludes that the results of reform have in general been positive although implementation has been more difficult and time consuming than originally expected in part because of interest group politics and in part because of its inherent complexity the paper highlights some issues of particular relevance to south africa s current political and economic transition

minimal settlement assets in economies with interconnected financial obligations a model is developed where firms belonging to a group are obliged to make payments to one another by using a liquid asset the paper studies the exogenous endowments of this asset that are necessary to assure that all obligations are met conditions are presented under which the degree to which firms are interconnected so that each creditor has more debtors and each debtor has more creditors increases the number of firms that must be endowed with the liquid asset interconnectedness then makes payment defaults more likely by acquiring too many payment obligations firms may also become too interconnected

the role of bank relationships in the interbank market this paper empirically explores the effect of bank lending relationships in the interbank market we use data from the e mid market that represents the only transparent electronic platform in europe and usa unaffected by search costs and other fictions we show that stable relationships exist and that they played a significant role during the 2007 2008 financial crisis trading with preferred counterparts is associated with more favorable rates for both lenders and borrowers and carries larger trading volumes the results point to a peer monitoring role of relationship lending which contributes at a time of financial distress to a smooth liquidity redistribution among banks relationship lending thus plays an important positive role for financial stability

modeling the banking firm a survey this paper reports on the status of the literature on micro bank modeling and assesses our understanding of the banking firm s optimal behavior this is no mean task for much has been written on banking broadly defined over the past couple of decades the review is developed in pieces each major subproblem is outlined and the analysis used to deal with the issue explicated this is not the best way to summarize the development of a field it should be immediately recognized one would prefer to have a smooth continuum of development moving the frontier of knowledge evenly through time and across subareas yet this is rarely the way a field develops more likely individual questions attract attention and are the subjects of a substantial number of contributions after a time the field moves on to the new area of interest the banking field is no exception before embarking upon the review however a couple of lines should be devoted to previous attempts there have been essentially three first pyle 1972 analyzes the uncertainty portfolio models at a time when little existed in the literature and hence one finds the review a bit vague and sketchy baltensperger s contributions 1978 1980 are the next serious and rather extensive reviews the quality of these

payment system settlement and bank incentives in this article we consider the relative merits of net versus gross settlement of interbank payments net settlement economizes on the costs of holding non interest bearing reserves but increases moral hazard problems the put option value of default under net settlement can also distort banks investment incentives absent these distortions net settlement dominates gross although the optimal net settlement scheme may involve a positive probability of default article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the over the counter theory of the fed funds market a primer we present a dynamic over the counter model of the fed funds market and use it to study the determination of the fed funds rate the volume of loans traded and the intraday evolution of the distribution of reserve balances across banks we also investigate the implications of changes in the market structure as well as the effects of central bank policy instruments such as open market operations the discount window lending rate and the interest rate on bank reserves

liquidity saving mechanisms abstract this paper studies the incentives of participants in a real time gross settlement system with and without the addition of a liquidity saving mechanism lsm participants in the model face a liquidity shock and different costs for delaying payments they trade off the cost of delaying a payment against the cost of borrowing liquidity from the central bank the main contribution of the paper is to show that the design of an lsm has important implications for welfare in particular parameters determine whether the addition of an lsm increases or decreases welfare

cartels in an nth best world the wholesale foodstuff trade in ibadan nigeria abstract the purpose of this paper is to develop an understanding of the economic functions and associated welfare implications of the cooperative associations that dominate the wholesale trade in two staple foods questionnaire responses lead to several conclusions individual traders face incomplete markets imperfect information and little government provided institutional and physical infrastructure the associations are sophisticated coase like responses to this market environment they focus on reducing their members transaction costs and hence the marginal private costs of trading thus it is likely that these associations enhance efficiency we conclude with a critique of current government policy with respect to this trade

behind the market stage where real societies exist part i the role of public and private order institutions this two part article is an attempt to clarify the social conditions upon which the viability and efficiency of the market system rest it strives to show that the embeddedness thesis that is an explanation based upon the existence of long run personal ties involving the use of reputation mechanisms among transactors cannot fully elucidate the question as to how the problem of trust is solved in market societies as explained in part i there are difficulties of both theoretical and empirical historical kinds and these explain why the market order needs to be sustained by private and public order institutions in part ii the role of generalised morality in backing or supplementing such institutions is discussed in the light of game theory and particular emphasis is put on the ability of moral norms to sustain honest behaviour by generating the right kind of preferences and establishing trust the vexed problem of the dynamics of norm emergence and erosion is then addressed with a view to showing

bank behavior interest rate determination and monetary policy in a financial system with an intraday federal funds market abstract this paper has two purposes one is to construct a formal model of the determination of and relationships between interest rates on funds with 24 hour overnight and intraday terms the second is to use this model to examine the likely effects of alternative federal reserve proposals for addressing the issue of intraday extension of federal reserve credit in the form of daylight overdrafts of bank reserve accounts it is demonstrated that present proposals all entail potentially significant drawbacks for monetary policy

bank size collateral and net purchase behavior in the federal funds market empirical evidence differences between large and small banks net purchase behavior in the uncollaterized federal funds and collateralized repurchase agreements markets are documented the larger a bank s asset size the larger ceteris paribus its federal funds purchases the threshold asset size is in the region of 1 billion to 2 5 billion for any size class banks located in major banking centers are more likely to be net federal funds purchasers than are banks located outside money centers in the collateralized repurchases agreements market there appears to be no size of locational discrimination indeed the smallest banks are the largest net purchasers as a fraction of assets of funds on the repurchases agreements market copyright 1989 by the university of chicago

the effect of the internet on economic growth evidence from cross country panel data abstract using cross country panel data we found evidence that the internet plays a positive and significant role in economic growth after investment ratio government consumption ratio and inflation were used as control variables in the growth equation

banks as monitors of other banks evidence from the overnight federal funds market this study provides evidence that banks are effective monitors of their peers by showing that the interest rate paid on federal funds transactions reflects differences in credit risk across borrowers in addition the size and relative importance in the funds market of the trading institutions are shown to affect the rates charged for overnight borrowing thereby providing insight into the nature of competition in the federal funds market transaction volume and size of transaction effects are uncovered as is evidence of relationship banking between banks these results are made possible by unique data identifying individual federal funds transactions copyright 2001 by university of chicago press

structure in the italian overnight loan market abstract we analyze the italian interbank loan market from 1999 until 2010 the analysis of net trade flows shows a high imbalance caused by a few large net borrowers in the market the trading volume shows a significant drop starting in 2007 which accelerates with the lehman default in late 2008 the interbank loan network is very dense hence we try to identify strong links by looking for preferential lending relationships expressed by discounts in the loan rate furthermore we estimate the dynamics of credit spreads for each bank and find that economically significant spreads for the overnight market developed only in 2010 the analysis of preferential loan relationships reveals that in the pre lehman era large net borrowers used to borrow at a slight discount in the post lehman era borrowers with large net exposures paid more than the average market rate which shows that the risk evaluation of market participants has changed considerably

financial depth internet penetration rates and economic growth country panel evidence abstractthe article investigates causal relationships between internet penetration rates financial depth and per capita economic growth in the next 11 countries using panel vector autoregressive var approaches our empirical results show that these variables are cointegrated moreover we find bidirectional causality between internet penetration rates and economic growth and between financial depth and economic growth in the short run

market emergence and transition arbitrage transaction costs and autarky in china s grain markets using trimonthly chinese provincial grain prices from 1988 to 1995 we estimate a parity bounds model of interregional trade for four subperiods to characterize how multiple aspects of market performance change during the process of economic transition for each period we estimate the extent to which arbitrage opportunities are realized by traders the transaction costs between location pairs and the likelihood that regions do not trade trade restrictions cannot explain the pattern of uneven market development over time infrastructure bottlenecks managerial incentive reforms and production specialization policies all were likely important factors affecting market performance

an agent based model of payment systems abstract we lay out and simulate 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 we study the equilibrium level of liquidity posted in the system performing some comparative statics and obtaining insights on the efficiency of alternative system configurations

the intraday interest rate under a liquidity crisis the case of august 2007 by analyzing high frequency data for the european interbank market we show that the intraday interest rate implicitly defined by the term structure of the on rate jumped by more than ten times at the outset of the financial turmoil in august 2007 resulting in an inefficiency of the money market this took place despite the provision of unlimited free daylight overdrafts by the ecb on a collateralized basis we suggest that such result may be attributed to an increase of the liquidity premium and of the cost of collateral

illiquidity in the interbank payment system following wide scale disruptions we show how the interbank payment system can become illiquid following wide scale disruptions two forces are at play in such disruptions operational problems and changes in participants behavior if the disruption is large enough hits a key geographic area or hits a too big to fail participant then the smooth processing of payments can break down and central bank intervention might be required to reestablish the socially efficient equilibrium the paper provides a theoretical framework to analyze the effects of events such as the september 11 attack in addition the model can be reinterpreted to analyze shocks to fundamentals that affect the parameters of the intraday liquidity management game we demonstrate this by showing how processing behavior changed in response to heightened credit risk at the time of the lehman brothers failure

food pricing policy in developing countries further evidence on cereal producer prices recently two independent studies have produced contradicting evidence regarding the extent of price discrimination in developing countries the objective of this study is to reexamine the evidence of direct and indirect distortion in cereal producer prices nominal protection coefficients for wheat maize and rice are calculated for fifty one developing countries spanning the period 1980 86 black market exchange rates are used to adjust the nominal protection coefficients to reflect the indirect effect of price interventions through exchange rate policies the results confirm the conventional wisdom that although developing countries tend to protect domestic cereal producers taxation caused by overvaluation of official exchange rates exceeds any direct price protection offered domestic producers

production hidden action and the payment system abstract using a modified version of freeman s 1996 payment system model the optimal intraday rate is examined the production set is modified to account for a non degenerate distribution of settlements within a day in addition to the modified production set the consumption set is modified a positive intraday interest rate may be able to implement the planner s allocation

nonlinear pricing and the market for settling payments fedwire funds is a real time gross settlement system that uses a decreasing block pricing scheme to attract nonurgent payments a bank s optimal response to fedwire s pricing depends on its perceived benefits to settling nonurgent payments quickly if the urgency for immediate settlement is great enough a bank responds to marginal price otherwise it responds to average price we find banks respond to average price suggesting that fedwire s advantage over competing services of being able to provide immediate settlement is small moreover attempts to increase demand for fedwire services by lowering the cost of banks final block of payments may be ineffective if there is not a corresponding decrease in average cost

information asymmetries and spillover risk in settlement systems abstract i show how information asymmetries between agents in different settlement systems can increase the risk that a problem in one may spill over to another i focus on the strategic behavior of participants who operate in multiple systems as they choose how best to manage their liquidity across the systems in the event of an operational shock in one system these participants may continue to make payments in order to avoid delay costs thereby risking a liquidity sink if they believe they can recycle liquidity from the other unaffected system they are more likely to risk a liquidity sink if they believe banks in the unaffected system will continue making payments early unaware of the operational problem i show that a liquidity saving mechanism lsm in one system may reduce the probability of spillover into the other in this sense i identify a positive externality from the introduction of an lsm