Working Paper: NBER ID: w30736
Authors: Gara Afonso; Darrell Duffie; Lorenzo Rigon; Hyun Song Shin
Abstract: Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing payments remain highly sensitive to incoming payments. By providing a window on liquidity constraints revealed by payment behavior, our results shed light on thresholds for the adequacy of reserve balances. Our findings are timely, given the ongoing shrinking of central bank balance sheets around the world in response to inflation.
Keywords: reserves; wholesale payment system; liquidity constraints; central bank balance sheets
JEL Codes: E42; E44; E52; E58; G22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| incoming payments (F24) | outgoing payments (G35) |
| volume of incoming payments (E50) | banks' outgoing payments (G21) |
| ample reserves (Q35) | banks' outgoing payments influenced by incoming payments (F65) |
| low reserve balances (E52) | strategic cash hoarding (D14) |