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Working Paper
Two-sided Market, R&D and Payments System Evolution
Li, Bin Grace; McAndrews, James J.; Wang, Zhu (2019-02-08)
It takes many years for more efficient electronic payments to be widely used, and the fees that merchants (consumers) pay for using those services are increasing (decreasing) over time. We address these puzzles by studying payments system evolution with a dynamic model in a two-sided market setting. We calibrate the model to the U.S. payment card data, and conduct welfare and policy analysis. Our analysis shows that the market power of electronic payment networks plays important roles in explaining the slow adoption and asymmetric price changes, and the welfare impact of regulations may vary ...
Working Paper , Paper 19-3

Journal Article
The timing and funding of Fedwire funds transfers
McAndrews, James J.; Rajan, Samira (2000-07)
An examination of the Federal Reserve?s Fedwire Funds Transfer service reveals that the highest concentration of funds-transfer value occurs in the late afternoon. The authors attribute this activity peak to attempts by banks (and their customers) to coordinate payment timing more closely. By synchronizing payments, banks can take advantage of incoming funds to make outgoing payments?especially during periods of heavy payment traffic. Conversely, during off-peak times, banks must rely more on account balances or overdrafts to fund payments, which increases the cost of making payments. For ...
Economic Policy Review , Issue Jul , Pages 17-32

Speech
Summary of the Report on the Competitiveness of Puerto Rico's Economy
McAndrews, James J. (2012)
Remarks before the Puerto Rico Chamber of Commerce Annual Convention, Fajardo, Puerto Rico.
Speech , Paper 86

Journal Article
Personal on-line payments
Kuttner, Kenneth N.; McAndrews, James J. (2001-12)
The swift growth of e-commerce and the Internet has led to the development of a new form of electronic funds transfer?the personal on-line payment?that uses web and e-mail technologies to initiate and confirm payments. This article describes this payment instrument and the trends that have given rise to it. The authors explain that personal on-line payment systems are already providing a convenient alternative to checks, money orders, and cash, and may replace credit cards for some small-scale retail e-commerce. However, issues such as the interoperability of diverse systems and the systems? ...
Economic Policy Review , Issue Dec , Pages 35-50

Journal Article
Matching collateral supply and financing demands in dealer banks
Kirk, Adam; Weed, Phillip; Sastry, Parinitha; McAndrews, James J. (2014-12)
The failure and near-collapse of some of the largest dealer banks on Wall Street in 2008 highlighted the marked vulnerability of the industry. Dealer banks are financial intermediaries that make markets for many securities and derivatives. Like standard banks, dealer banks may derive the funding for a loan from their own equity or from external sources, such as depositors or creditors. Unlike standard banks, however, dealer banks rely heavily upon collateralized borrowing and lending, which give rise to ?internal? sources of financing. This article provides a descriptive and analytical ...
Economic Policy Review , Issue Dec , Pages 127-151

Journal Article
Divorcing money from monetary policy
Keister, Todd; McAndrews, James J.; Martin, Antoine (2008-09)
Many central banks implement monetary policy in a way that maintains a tight link between the stock of money and the short-term interest rate. In particular, their implementation procedures require that the supply of reserve balances be set precisely in order to implement the target interest rate. Because bank reserves play other key roles in the economy, this link can create tensions with other important objectives, especially in times of acute market stress. This article considers an alternative approach to monetary policy implementation -- known as a "floor system" -- that can reduce ...
Economic Policy Review , Volume 14 , Issue Sep , Pages 41-56

Journal Article
Settlement liquidity and monetary policy implementation—lessons from the financial crisis
Bech, Morten L.; McAndrews, James J.; Martin, Antoine (2012-03)
The U.S. dollar clearing and settlement system received little attention during the recent financial crisis, mainly because it performed reliably, processing record volumes and values of trades made in stressed financial markets. This article shows how Federal Reserve policy measures aimed at providing liquidity and stability to the financial system during and after the crisis had a major impact on settlement liquidity and thus on the efficiency of clearing and settlement system activity. The measures led to a substantial decrease in daylight overdrafts extended by the Federal Reserve and a ...
Economic Policy Review , Volume 18 , Issue Mar , Pages 3-20

Working Paper
The economics of two-sided payment card markets: pricing, adoption and usage
Wang, Zhu; McAndrews, James J. (2012)
This paper provides a new theory for two-sided payment card markets. Adopting payment cards requires consumers and merchants to pay a fixed cost, but yields a lower marginal cost of making payments. Analyzing adoption and usage externalities among heterogeneous consumers and merchants, our theory derives the equilibrium card adoption and usage pattern consistent with empirical evidence. Our analysis also helps explain the card pricing puzzles, particularly the high and rising merchant (interchange) fees. Based on the theoretical framework, we discuss socially desirable payment card fees as ...
Working Paper , Paper 12-06

Working Paper
Regional authorities, public services, and the location of economic activity
Voith, Richard; McAndrews, James J. (1990)
Working Papers , Paper 90-17

Discussion Paper
If Interest Rates Go Negative . . . Or, Be Careful What You Wish For
McAndrews, James J.; Garbade, Kenneth D. (2012-08-29)
The United States has slid into eight recessions in the last fifty years. Each time, the Federal Reserve sought to revive economic activity by reducing interest rates (see chart below). However, since the end of the last recession in June 2009, the economy has continued to sputter even though short-term rates have remained near zero. The weak recovery has led some commentators to suggest that the Fed should push short-term rates even lower?below zero?so that borrowers receive, and creditors pay, interest.
Liberty Street Economics , Paper 20120829

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