Alternative Paths Towards EMU: Lessons from an Expanded Mundell-Fleming Model for the Accession Countries

A small expectations-expanded "Mundell-Fleming" model is built for the European Union Accession Countries and estimated to assess the optimality of different exchange rate regimes (a peg and a float) through a simple welfare function. Floating appears as the best option for most of the countries in our sample, and this conclusion is robust to changes in the weights of the welfare function. The "shock absorbing" qualities of the regimes for different types of innovations is assessed via a VAR and a structural model, and here again the float seems to outperform a harder regime, in the emergence of temporary shocks

"EMU and Enlargement: A Review of Policy Issues"

This report is the final output of the study "Economic and Monetary Union and Enlargement" commissioned by the Directorate-General for Research of the European Parliament in May 1999. An Interim Report was provided in September 1999. The report reviews the mains policy issues concerning the accession of 10 Central and Eastern European Countries, and Cyprus and Malta, and the interaction with their parallel integration into the Economic and Monetary Union.Euro, Enlargement, Transition Economies, Exchange Rate Regimes, Monetary Policies, DIT.

Simulating retaliation in payment systems: Can banks control their exposure to a failing participant?

This paper assesses the impact of an operational failure at one of the biggest participants in the Dutch interbank payment system, varying the time at which the disruption takes place. Liquidity levels equal historical levels. The impact of such a disruption is quantified in terms of the additional liquidity needed in order to settle all payments than can settle given the banks' intraday reserves and collateral facilities. Assuming the disruption lasts for the remainder of the day, banks are faced with costs, as they need to borrow this additional liquidity overnight from the market or from the central bank. As could be expected, the second-round effect (the number of unsettled payments among healthy banks) of an operational disruption is highest when it occurs early during the day and lasts for the remainder of the day. So are the additional overnight liquidity needed and the costs of overnight credit. Furthermore, the paper introduces different possible reaction patterns from the stricken bank's counterparties. These counterparties can react according to two basic rules: they stop sending payments to the stricken bank either after some pre-determined time or after their exposure to the stricken bank reaches a certain level. From a cost perspective, reacting is more effective when determined by the individual exposure of the stricken banks' counterparties. However, even an immediate reaction does not prevent banks from running losses following the failure of a major participant. This leads to a reflection about the bilateral relations between the stricken bank, considered to be a node in a partial star network, and the other banks. How much each payment system participant can control its exposure to the stricken bank depends on the degree of reciprocity in the value of bilateral payments.payment system; operational disruption; liquidity

A tale of the water-supplying plumber: intraday liquidity provision in payment systems

This paper provides an overview of the literature on intraday credit in payment systems to date and explores the dilemma central banks face when deciding on their intraday credit policies. On the one hand, any strategy in which the costs of liquidity are not fully borne by payment system participants can be expected to yield an inefficient outcome . Participants would consume more credit than optimal and, due to moral hazard, central banks would be faced with larger amounts at risk and a greater risk of default than would otherwise be the case. On the other hand, a strategy making intraday liquidity expensive increases the risk of payment delays and payment system gridlocks, due to participants limiting their intraday borrowings and delaying the sending of payments, which can hamper the well functioning of the payment system. This could further influence the allocation of real resources, as achieving economic efficiency requires intraday credit to be provided without cost, even accounting for default risk and moral hazard. Recent developments in payment system design, which have improved the turnover ratio of reserves, have reduced the stringency of the dilemma in a number of countries.large-value payment system; intraday credit; liquidity.

The BIS statistics on payments and settlements

The methodology and presentation of the BIS payment and settlement statistics have been modified to enhance the comparability of data provided by different countries. The statistics show the impact of technological innovations on the use of payment instruments and on the processing of payments and securities settlements over the years. The addition of central bank intraday credit to the statistical collection allows for an analysis of liquidity needs in payment systems.

Changing post-trading arrangements for OTC derivatives

The post-trading infrastructure of OTC derivatives markets has not always kept up with the rapid growth in trading volumes. Recent years have seen some initiatives that seek to introduce multilateral elements that facilitate flows of information between market participants while preserving the decentralised nature of the transactions. While central counterparties lead to the highest degree of mutualisation, other services, such as central information depositories or multilateral terminations, could deliver similar benefits in terms of information management.

Alternative Paths Towards EMU: Lessons from an Expanded Mundell-Fleming Model for the Accession Countries

A small expectations-expanded "Mundell-Fleming" model is built for the European Union Accession Countries and estimated to assess the optimality of different exchange rate regimes (a peg and a float) through a simple welfare function. Floating appears as the best option for most of the countries in our sample, and this conclusion is robust to changes in the weights of the welfare function. The "shock absorbing" qualities of the regimes for different types of innovations is assessed via a VAR and a structural model, and here again the float seems to outperform a harder regime, in the emergence of temporary shocks.Euro, Enlargement, Transition Economies, Exchange Rate Regimes, Mundell-Fleming Models