the zero-nominal-interest-rate policy (the Friedman rule) does not maximize type-specific welfare; further, it may not … maximize aggregate ex ante social welfare. Indeed one or, more surprisingly, both types of agents may benefit if the central … bank deviates from the Friedman rule. …

standing facilities, and the second one relies only on open market operations. We show that the Friedman rule cannot be …

. They trade off the cost of delaying a payment against the cost of borrowing liquidity from the central bank. The …

Over the last few decades, most central banks, concerned about settlement risks inherent in payment netting systems …, they require greater liquidity to smooth nonsynchronized payment flows. Thus, central banks typically provide intraday … intraday liquidity is managed has become a competitive parameter in commercial banking and a policy concern of central banks …

some prespecified event occurs. LSMs can reduce the amount of central bank balances necessary to operate a payments system …

I explore alternative central bank policies for liquidity provision in a model of payments. I use a mechanism design …, the central bank invests in costly enforcement and charges an interest rate to recover costs. I show that the second best … solution is not distortionary. In the second policy, the central bank requires collateral. If collateral does not bear an …