William Roberds

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 systems avoid certain gridlock situations, which may arise in gross settlement in the absence of delivery versus payment requirements. In addition, net settlement can economize on collateral requirements and avoid trading delays.

A Daily View of Yield Spreads and Short-Term Interest Rate Movements

Daily data on short-term interest rates are used to show how changes in Federal Reserve operating procedures have affected the term structure. Yield spreads were helpful in predicting short-term interest-rate movements during the nonborrowed reserves targeting period (1979-82) but not during the earlier Federal-funds targeting period. Since the adoption of contemporaneous-reserves accounting in 1984, yield spreads have been informative about short-term interest rate movements, principally because of the interplay between the market determination of the overnight funds rate on reserve settlement Wednesdays and the Feds apparent commitment to stabilizing the funds rate on other days. Copyright 1996 by Ohio State University Press.

Models of policy under stochastic replanning

This paper considers a policy environment in which policy is not set by a single policymaker, but by a sequence of policymaking administrations. Administration turnover is determined by a simple random process. The consequences of administration turnover are traced through for two versions of a linear rational expectations model, and numerical simulations of various policy environments are presented.

Money is Privacy

An extensive literature in monetary theory has emphasized the role of money as a record-keeping device. Money assumes this role in situations where using credit would be too costly, and some might argue that this role will diminish as the cost of information and thus the cost of credit-based transactions continues to fall. In this article we investigate another use for money, the provision of privacy. That is, a money purchase does not identify the purchaser, whereas a credit purchase does. In a simple trading economy with moral hazard, we compare the efficiency of money and credit, and find that money may be useful even when information is free.

The Quantitative Significance of the Lucas Critique

Doan, Litterman, and Sims (DLS) have suggested using conditional forecasts to do policy analysis with Bayesian vector autoregression (BVAR) models. Their method seems to violate the Lucas critique, which implies that coefficients of a BVAR model will change when there is a change in policy rules. In this article, we attempt to determine whether the Lucas critique is important quantitatively in a BVAR macro model that we construct. We find evidence following two candidate policy rule changes of significant coefficient instability and of a deterioration in the performance of the DLS method.

An economic explanation of the early Bank of Amsterdam, debasement, bills of exchange, and the emergence of the first central bank

The Bank of Amsterdam, founded in 1609, was the first public bank to offer accounts not directly convertible to coin. As such, it can be described as the first true central bank. The debut of central bank money did not result from any conscious policy decision, however, but instead arose almost by accident, in response to the chaotic monetary conditions during the early years of the Dutch Republic. This paper examines the history of this momentous development from the perspective of modern monetary theory.

A Theory of Transactions Privacy

In this paper, we consider the costs and benefits of transactions privacy. In the environment we consider, privacy is the concealment of potentially useful information, but concealment also potentially bestows benefits. In some versions of the environment, the standard Coasian logic applies: given an unambiguous initial assignment of rights and sufficient flexibility in contracting, efficiency in information revelation will result. Coasian bargaining may be impeded, however, by either an inability to make certain commitments or by the presence of significant investments that must be made before the transaction occurs. In such cases, initial assignments of rights (for example, privacy laws) can have consequences for efficiency

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 no effect on equilibrium allocations. If float is not priced into market transactions, then it acts as distorting tax. Consistent with earlier studies, we show that float can also lead to inefficiencies if banks engage in costly activities designed to accelerate check presentment. ; Our analysis is consistent with view that float is a significant factor behind the continued popularity of check payment. Our analysis also consistent with recent data that indicate that the average value of float (per check) is small.

The Big Problem of Large Bills: The Bank of Amsterdam and the Origins of Central Banking

This paper outlines a model of the first true central bank, the Bank of Amsterdam, founded in 1609. Employing a variant of the Freeman (1996) model of money and payments, we first analyze the problematic monetary situation in the Netherlands prior to the founding of the Bank. We then use the model to describe how the Bank could remedy this situation by creating a stable medium for the settlement of commercial obligations.

Inflation and unemployment : causes, consequences and cures

This is an introduction to the costs of unemployment and inflation, which analyzes the ways in which these two issues profoundly influence the conduct of economic policy. The book covers economic events and policies in the UK and the USA.