nep-pay New Economics Papers
on Payment Systems and Financial Technology
Issue of 2023‒06‒12
33 papers chosen by
Bernardo Bátiz-Lazo
Northumbria University

  1. Thoughts on the Crypto Ecosystem: At the Global Interdependence Center Conference: Digital Money, Decentralized Finance, and the Puzzle of Crypto, La Jolla, California February 10th 2023 By Christopher J. Waller
  2. An Examination of First-Mover Advantage for a CBDC By Ken Isaacson; Jesse Leigh Maniff; Paul Wong
  3. Female unemployment, mobile money innovations and doing business by females By Simplice A. Asongu; Nicholas M. Odhiambo
  4. Reframing The US Dollar Debate: What Outlook for the US Dollar as World Money? By Jeremy Srouji
  5. Network Goods, Price Discrimination, and Two-sided Platforms By Paul Belleflamme; Martin Peitz
  6. FinTech, Investor Sophistication and Financial Portfolio Choices By Leonardo Gambacorta; Romina Gambacorta; Roxana Mihet
  7. Predicting the Price Movement of Cryptocurrencies Using Linear Law-based Transformation By Marcell T. Kurbucz; P\'eter P\'osfay; Antal Jakov\'ac
  8. Understand Waiting Time in Transaction Fee Mechanism: An Interdisciplinary Perspective By Luyao Zhang; Fan Zhang
  9. CBDC and business cycle dynamics in a New Monetarist New Keynesian model By Assenmacher, Katrin; Bitter, Lea; Ristiniemi, Annukka
  10. Peer effects in deposit markets By Cramer, Kim Fe; Koont, Naz
  11. Economic contribution to the debate on cost sharing policy By Edmond Baranes; Cuong Hung Vuong
  12. Considerations for a Central Bank Digital Currency: a speech at the Georgetown University McDonough School of Business Psaros Center for Financial Markets and Policy, Washington, DC. April 18, 2023 By Michelle W. Bowman
  13. Gendered implications of the waves of COVID-19 and economic upgrading trajectories in digital value chains: Insights from Kenyan agricultural platforms By Aarti Krishnan; Monica Nganga; Tim Foster
  14. Value creation and appropriation of software vendors: A digital innovation model for cloud computing By Dirk Schneckenberg; Jose Benitez; Christoph Klos; Vivek Velamuri; Patrick Spieth
  15. Innovation and the Future of Finance: a speech at the Cryptocurrency and the Future of Global Finance, Sarasota, Florida, April 20, 2023 By Christopher J. Waller
  16. The Financial and Non-Financial Performance of Token-Based Crowdfunding: Certification Arbitrage, Investor Choice, and the Optimal Timing of ICOs By Niclas Dombrowski; Wolfgang Drobetz; Lars Hornuf; Paul P. Momtaz
  17. The Monetization of Innovation By Missaka Warusawitharana
  18. NFT Wash Trading Detection By Derek Liu; Francesco Piccoli; Katie Chen; Adrina Tang; Victor Fang
  19. Impact of size and volume on cryptocurrency momentum and reversal By Milan Fičura
  20. Reviewing Canada’s Monetary Policy Implementation System: Does the Evolving Environment Support Maintaining a Floor System? By Toni Gravelle; Ron Morrow; Jonathan Witmer
  21. Younger Borrowers Are Struggling with Credit Card and Auto Loan Payments By Andrew F. Haughwout; Donghoon Lee; Daniel Mangrum; Joelle Scally; Wilbert Van der Klaauw
  22. The Innovation Imperative: Modernizing Traditional Banking: a speech at the Independent Community Bankers of America ICBA Live 2023 Conference, Honolulu, Hawaii, March 14, 2023 By Michelle W. Bowman
  23. IT Shields: Technology Adoption and Economic Resilience during the COVID-19 Pandemic By Myrto Oikonomou; Nicola Pierri; Yannick Timmer
  24. The Decision to Remit: Is it a Matter of Interpersonal Trust? By Kasmaoui Kamal; Makhlouf Farid; Refk Selmi
  25. Theoretical Foundations of the Dependent Monetary Regimes By Nikolay Nenovsky
  26. How to Apply the Self-Preferencing Prohibition in the DMA By Martin Peitz
  27. PRIME: A Price-Reverting Impact Model of a cryptocurrency Exchange By Christopher J. Cho; Timothy J. Norman; Manuel Nunes
  28. The Consequences of Fewer Banks in the U.S. Banking System: a speech at the Wharton Financial Regulation Conference, Philadelphia, Pennsylvania, April 14, 2023 By Michelle W. Bowman
  29. The Dollar’s Imperial Circle By Ozge Akinci; Gianluca Benigno; Serra Pelin; Jonathan Turek
  30. Bank Branch Access: Evidence from Geolocation Data By Jung Sakong; Alexander Zentefis
  31. Systematic Review on Reinforcement Learning in the Field of Fintech By Nadeem Malibari; Iyad Katib; Rashid Mehmood
  32. Selfish in payments, selfish in opportunities to obtain the payment By Giselli Castillo
  33. Supporting Innovation with Guardrails: The Federal Reserve’s Approach to Supervision and Regulation of Banks’ Crypto-related Activities: a speech at the Peterson Institute for International Economics, Washington, D.C, March 9, 2023.. By Michael S. Barr

  1. By: Christopher J. Waller
    Date: 2023–02–10
  2. By: Ken Isaacson; Jesse Leigh Maniff; Paul Wong
    Abstract: This paper explores whether there could be a first-mover advantage for a jurisdiction issuing a central bank digital currency (CBDC) compared to other jurisdictions that subsequently issue their own CBDC. Conventional academic literature provides a framework by which one can assess a CBDC in the domestic payments market, the international payments market, and the technology markets that support payments. However, a CBDC may be more than just a means of payment and thus first-mover advantage is examined for both the asset component of reserve currency and a future financial system built on CBDCs. Overall, the first mover literature does not suggest that there is a compelling first-mover advantage for issuing a CBDC.
    Date: 2022–11–25
  3. By: Simplice A. Asongu (Yaounde, Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: The purpose of this study is to complement extant literature by examining how mobile money innovations can moderate the unfavorable incidence of female unemployment on female doing of business in 44 countries from sub-Saharan Africa for the period 2004 to 2018. The empirical evidence is based on interactive quantile regressions. The employed doing business constraints are the procedures a woman has to go through to start a business and the time for women to set up a business, while the engaged mobile money innovations are: (i) registered mobile money agents (registered mobile money agents per 1000 km2 and registered mobile money agents per 100 000 adults) and (ii) active mobile money agents (active mobile money agents per 1000 km2 and active mobile money agents per 100 000 adults). The hypothesis that mobile money innovation moderates the unfavorable incidence of female unemployment on business constraints is overwhelmingly invalid. The invalidity of the tested hypothesis is clarified, and the policy implications are discussed.
    Keywords: Mobile phones; financial inclusion; women; doing business; sub-Saharan Africa
    JEL: G20 O40 I10 I20 I32
    Date: 2023–01
  4. By: Jeremy Srouji (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: It is often difficult to make sense of the range of optimistic, cautious, and pessimistic views about the sustainability of the US dollar's role as the top international currency. This paper reframes the US dollar debate by demonstrating that economists generally draw on two distinct theories of currency internationalization, with very different assumptions about how currencies achieve and maintain an international role. These assumptions often remain implicit, but are essential to make sense of the debate, as well as the question of international money more generally. The paper then considers whether crypto currencies and central bank digital currencies could play the international currency role, as understood by these theories. It concludes by reflecting on whether in an increasingly multipolar world the question of the sustainability of the US dollar's international role is misplaced, particularly given the growing support for the establishment of a true global international reserve currency.
    Keywords: US dollar, international money, international monetary system reform, US debt, Bretton Woods II, global macroeconomic imbalances
    JEL: F01 F33
    Date: 2022–02
  5. By: Paul Belleflamme; Martin Peitz
    Abstract: A monopolist selling a network good to heterogeneous users is shown to become a twosided platform if it can condition prices on some user characteristics or if it cannot but induces user self-selection by offering screening contracts. This shows that the availability of sophisticated pricing instruments is essential to make a platform two-sided, not the ability to distinguish separate user groups. The use of freemium strategies (which consists of offering a base version at zero price and a premium version at a positive price) emerges as a special case of versioning.
    Keywords: Network goods, two-sided platforms, platform pricing, group pricing, versioning, freemium
    JEL: D21 D42 L12 L14
    Date: 2023–03
  6. By: Leonardo Gambacorta (Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)); Romina Gambacorta (Bank of Italy); Roxana Mihet (Swiss Finance Institute - HEC Lausanne)
    Abstract: This paper analyses the links between advances in financial technology, investors’ sophistication, and the composition and returns of their financial portfolios. We develop a simple portfolio choice model under asymmetric information and derive some theoretical predictions. Using detailed microdata from Banca d’Italia, we test these predictions for Italian households over the period 2004- 20. In general, heterogeneity in portfolio composition and in returns between sophisticated and unsophisticated investors grows with improvements in financial technology. This heterogeneity is reduced only if financial technology is accessible to everyone and if investors have a similar capacity to use it.
    Keywords: Inequality, Inclusion, FinTech, Innovation, Matthew Effect.
    JEL: G1 G5 G4 D83 L8 O3
    Date: 2023–04
  7. By: Marcell T. Kurbucz; P\'eter P\'osfay; Antal Jakov\'ac
    Abstract: The aim of this paper is to investigate the effect of a novel method called linear law-based feature space transformation (LLT) on the accuracy of intraday price movement prediction of cryptocurrencies. To do this, the 1-minute interval price data of Bitcoin, Ethereum, Binance Coin, and Ripple between 1 January 2019 and 22 October 2022 were collected from the Binance cryptocurrency exchange. Then, 14-hour nonoverlapping time windows were applied to sample the price data. The classification was based on the first 12 hours, and the two classes were determined based on whether the closing price rose or fell after the next 2 hours. These price data were first transformed with the LLT, then they were classified by traditional machine learning algorithms with 10-fold cross-validation. Based on the results, LLT greatly increased the accuracy for all cryptocurrencies, which emphasizes the potential of the LLT algorithm in predicting price movements.
    Date: 2023–04
  8. By: Luyao Zhang; Fan Zhang
    Abstract: Blockchain enables peer-to-peer transactions in cyberspace without a trusted third party. The rapid growth of Ethereum and smart contract blockchains generally calls for well-designed Transaction Fee Mechanisms (TFMs) to allocate limited storage and computation resources. However, existing research on TFMs must consider the waiting time for transactions, which is essential for computer security and economic efficiency. Integrating data from the Ethereum blockchain and memory pool (mempool), we explore how two types of events affect transaction latency. First, we apply regression discontinuity design (RDD) to study the causal inference of the Merge, the most recent significant upgrade of Ethereum. Our results show that the Merge significantly reduces the long waiting time, network loads, and market congestion. In addition, we verify our results' robustness by inspecting other compounding factors, such as censorship and unobserved delays of transactions via private changes. Second, examining three major protocol changes during the merge, we identify block interval shortening as the most plausible cause for our empirical results. Furthermore, in a mathematical model, we show block interval as a unique mechanism design choice for EIP1559 TFM to achieve better security and efficiency, generally applicable to the market congestion caused by demand surges. Finally, we apply time series analysis to research the interaction of Non-Fungible token (NFT) drops and market congestion using Facebook Prophet, an open-source algorithm for generating time-series models. Our study identified NFT drops as a unique source of market congestion -- holiday effects -- beyond trend and season effects. Finally, we envision three future research directions of TFM.
    Date: 2023–05
  9. By: Assenmacher, Katrin; Bitter, Lea; Ristiniemi, Annukka
    Abstract: To study implications of an interest-bearing CBDC on the economy, we integrate a New Monetarist-type decentralised market that explicitly accounts for the means-of-exchange function of bank deposits and CBDC into a New Keynesian model with financial frictions. The central bank influences the store-of-value function of money through a conventional Taylor rule while it affects the means-of-exchange function of money through CBDC operations. Peak responses to monetary policy shocks remain similar in the presence of an interest-bearing CBDC, implying that monetary transmission is not impaired. At the same time however, the provision of CBDC helps smooth responses to macroeconomic shocks. By supplying CBDC, the central bank contributes to stabilising the liquidity premium, thereby affecting bank funding conditions and the opportunity costs of money, which dampens and smoothes the reaction of investment and consumption to macroeconomic shocks. JEL Classification: E58, E41, E42, E51, E52
    Keywords: Central bank digital currency, DSGE, monetary policy, search and matching
    Date: 2023–05
  10. By: Cramer, Kim Fe; Koont, Naz
    Abstract: We provide first empirical evidence that consumer peer effects matter for banks' deposit demand. Using a novel measure that depicts for each county how exposed peers are to a specific bank in a given year, we tightly identify the causal effect of peer exposure on deposit demand through a fixed effects identification strategy. We address key empirical challenges such as time-invariant homophily. We find that a one percent increase in a bank's peer exposure leads to a 0.05 percent increase in deposit market share. This effect has become stronger over time with the rise of the internet and social media, which facilitate cross-county communication. Peer exposure is especially relevant for smaller banks and customers that have access to the internet.
    Keywords: deposit demand; peer effects; banking
    JEL: G21
    Date: 2021–09–25
  11. By: Edmond Baranes (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier); Cuong Hung Vuong
    Keywords: digital platforms, externality, cost sharing
    Date: 2023–03–06
  12. By: Michelle W. Bowman
    Date: 2023–04–18
  13. By: Aarti Krishnan; Monica Nganga; Tim Foster
    Abstract: Women play a critical yet under-researched role in global digital agri-food value chains, especially in smallholder production, which affects how they are able to economically upgrade (improve crop yields and product quality, and increase product diversification). Research suggests that women's participation in agricultural platform-driven value chains facilitates the overcoming of barriers such as access to productive resources and engenders upgrading.
    Keywords: Digital platforms, Agriculture, Gender, Upgrading, Value chains
    Date: 2023
  14. By: Dirk Schneckenberg (ESC [Rennes] - ESC Rennes School of Business); Jose Benitez (ESC [Rennes] - ESC Rennes School of Business); Christoph Klos (University of Kassel); Vivek Velamuri (Leipzig Graduate School of Management); Patrick Spieth (University of Kassel)
    Abstract: Do software vendors propose, create, and capture value in the era of digital transformation? Drawn on the literature of business models, digital innovation, and firms' capabilities, we examine this cutting-edge research question. We conducted a multiple case research of 10 software vendors operating in Germany and Austria. The thematic analysis yields a conceptual model that explains whether and how software vendors leverage cloud computing-enabled innovation for the digital boost, which is this study's primary contribution to information systems research. Software vendors use a complementary portfolio of information technology and organizational capabilities to innovate in their value proposition, creation, and capture.
    Keywords: Digital innovation, Software vendors, Cloud computing, Business model, Digital capabilities, Organizational capabilities
    Date: 2021–06
  15. By: Christopher J. Waller
    Date: 2023–04–20
  16. By: Niclas Dombrowski; Wolfgang Drobetz; Lars Hornuf; Paul P. Momtaz
    Abstract: What role does the selection of an investor and the timing of financing play in initial coin offerings (ICOs)? We investigate the operating and financial performance of ventures conducting ICOs with different types of investors at different points in the ventures’ life cycle. We find that, relative to purely crowdfunded ICO ventures, institutional investor-backed ICO ventures exhibit poorer operating performance and fail earlier. However, conditional on their survival, these ventures financially outperform those that do not receive institutional investor support. The diverging effects of investor backing on financial and operating performance are consistent with our theory of certification arbitrage; i.e., institutional investors use their reputation to drive up valuations and quickly exit the venture post-ICO. Our findings further indicate that there is an inverted U-shaped relationship for fundraising success of ICO ventures over their life cycle. Another inverted U-shaped relationship exists for the short-term financial performance of ICO ventures over their life cycle. Both the fundraising success and the financial performance of an ICO venture initially increase over the life cycle and eventually decrease after the product piloting stage.
    Keywords: Token Offering, Initial Coin Offering (ICO), crypto funds, operating versus financial performance, entrepreneurial finance, optimal timing
    JEL: G24 G32 K22 L26
    Date: 2023
  17. By: Missaka Warusawitharana
    Abstract: We develop a dynamic model for digital service firms, which invest in monetization to generate revenues from services provided to customers for free. Our model captures and explains why such firms often build a large customer base and become highly valued while continuing to suffer losses—traditional models would struggle to explain this pattern. Counterfactual analysis reveals that monetization uncertainty slows technological advancement by diverting resources away from innovation. We also show that regulation aimed at protecting user privacy has sizable adverse effect on firm size and the quality of the offered service but, perhaps surprisingly, makes firms less unprofitable. On the other hand, regulation encouraging competition supports innovation.
    Keywords: monetization; data privacy; digital service firms; innovation; regulation
    JEL: O32 O31 G31 D21
    Date: 2022–12
  18. By: Derek Liu; Francesco Piccoli; Katie Chen; Adrina Tang; Victor Fang
    Abstract: Wash trading is a form of market manipulation where the same entity sells an asset to themselves to drive up market prices, launder money under the cover of a legitimate transaction, or claim a tax loss without losing ownership of an asset. Although the practice is illegal with traditional assets, lack of supervision in the non-fungible token market enables criminals to wash trade and scam unsuspecting buyers while operating under regulators radar. AnChain.AI designed an algorithm that flags transactions within an NFT collection history as wash trades when a wallet repurchases a token within 30 days of previously selling it. The algorithm also identifies intermediate transactions within a wash trade cycle. Testing on 7 popular NFT collections reveals that on average, 0.14% of transactions, 0.11% of wallets, and 0.16% of tokens in each collection are involved in wash trading. These wash trades generate an overall total price manipulation, sales, and repurchase profit of \$900K, \$1.1M, and negative \$1.6M respectively. The results draw attention to the prevalent market manipulation taking place and inform unsuspecting buyers which tokens and sellers may be involved in criminal activity.
    Date: 2023–02
  19. By: Milan Fičura
    Abstract: We analyse how cryptocurrency size and trading volume impact the momentum and reversal dynamics of their returns. We show that the previously reported weekly return reversal occurs for small and illiquid coins only (t-stat = -7.31), while the large and liquid coins exhibit weekly momentum effect instead (t-stat = 2.33). Long-term returns exhibit reversal effects, which are, however, insignificant for the large and liquid coins. We further analyse the impact of high momentum on future cryptocurrency returns, measured as the distance of previous-week closing price from the k-week high. High momentum has not been analysed on cryptocurrency markets before, and we show it to be a superior predictor of future returns when compared to regular momentum. The distance from the 1-week high predicts negatively future returns of small and illiquid coins (t-stat = -9.03) and positively future returns of large and liquid coins (t-stat = 4.93). The results are highly robust to different settings of the size and liquidity thresholds. We further show that the short-term reversal of small and illiquid coins is driven mostly by their low trading volumes, while the short-term momentum of large and liquid coins is driven mostly by high market capitalizations and to a lower degree by high trading volumes.
    Keywords: Cryptocurrency, momentum, reversal, high-momentum, size, liquidity, asset pricing
    JEL: G11 G12 G17
    Date: 2023–04–05
  20. By: Toni Gravelle; Ron Morrow; Jonathan Witmer
    Abstract: At the onset of the pandemic, the Bank of Canada transitioned its framework for monetary policy implementation from a corridor system to a floor system, which it has since decided to maintain. This decision was informed by the analysis and assessment of the two frameworks in this paper. We provide a comprehensive analysis of both frameworks and assess their relative merits based on five key criteria that define a sound framework. Our evaluation includes a discussion of how these relative merits have changed since the pandemic began. Specifically, we examine the evolving regulatory landscape, changes in payment systems, and the Bank's quantitative easing program to understand their implications for the relative strengths of the two frameworks for monetary policy implementation.
    Keywords: Market structure and pricing; Monetary policy implementation; Payment clearing and settlement systems
    JEL: D4 D47 E42 E5 E58
    Date: 2023–05
  21. By: Andrew F. Haughwout; Donghoon Lee; Daniel Mangrum; Joelle Scally; Wilbert Van der Klaauw
    Abstract: Total debt balances grew by $394 billion in the fourth quarter of 2022, the largest nominal quarterly increase in twenty years, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Mortgage balances, the largest form of household debt, drove the increase with a gain of $254 billion, while credit card balances saw a $61 billion increase—the largest observed in the history of our data, which goes back to 1999.
    Keywords: consumer credit panel; delinquency
    JEL: D14
    Date: 2023–02–16
  22. By: Michelle W. Bowman
    Date: 2023–03–14
  23. By: Myrto Oikonomou; Nicola Pierri; Yannick Timmer
    Abstract: We study the labor market effects of information technology (IT) during the onset of the COVID-19 pandemic, using data on IT adoption covering almost three million establishments in the US. We find that in areas where firms had adopted more IT before the pandemic, the unemployment rate rose less in response to social distancing. IT shields all individuals, regardless of gender and race, except those with the lowest educational attainment. Instrumental variable estimates–leveraging historical routine employment share as a booster of IT adoption– confirm IT had a causal impact on fostering labor markets’ resilience. Additional evidence suggests this shielding effect is due to the easiness of working-from-home and to stronger creation of digital jobs in high IT areas.
    Keywords: Unemployment Rate; Technology; IT Adoption; Inequality; Skill-Biased Technical Change
    JEL: E24 O33
    Date: 2023–02–03
  24. By: Kasmaoui Kamal (ESC PAU - Ecole Supérieure de Commerce, Pau Business School); Makhlouf Farid (ESC PAU - Ecole Supérieure de Commerce, Pau Business School); Refk Selmi (ESC PAU - Ecole Supérieure de Commerce, Pau Business School)
    Abstract: This article seeks to assess the role of the level of interpersonal trust in a country in the remittance landscape. Using historical data from the 2010-2014 wave of the World Value Survey (WVS) for interpersonal trust, our findings underline the substitution role played by interpersonal trust with remittances. More accurately, remittances tend to drop when the rate of interpersonal trust in the country of origin is high. Overall, a rise in trust is likely to underpin social cohesion, limiting therefore the need for remittances. Potential elements including human capital, cultural factors, the quality of institutions, the financial development and the inequality have been advanced to explain the obtained findings.
    Keywords: Interpersonal trust, Remittances, Social capital
    Date: 2023
  25. By: Nikolay Nenovsky (LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286 - UPJV - Université de Picardie Jules Verne)
    Abstract: The purpose of the present article is to present a comprehensive framework to analyse main characteristics and institutional forms of the dependent monetary regimes. A country's monetary regime is an extension of its geopolitical and geo-economic place in the international system. The dynamic monetary dependence/independence of a particular country is a direct continuation of, as well as ‘serving', the (geo)political and economic dependence/independence of that country. That dependence does not mean that small countries do not benefit from this type of monetary and political regimes; on the contrary – in most cases it is the most appropriate, so to speak, "optimal" form which, if skilfullymanaged, minimises losses under a given external structural constraint. As a rule, in dependent countries, external sources of money supply dominate domestic sources. Peripheral and dependent countries cannot borrow on international markets in their own national currencies. They borrow in major world currencies and become vulnerable to currency (exchange rate) risk. The inflow of external capital, in turn, requires a corresponding stable institutional and political environment. Therefore, the external equilibrium (external stability), i.e., the state of the balance of payments and especially its financial (capital) account, as well as the dynamics of the exchange rate, become central parameters for the development of the peripheral countries. It is interesting to add that the imposition of a dependent regime in small and peripheral countries is accompanied by the imposition and dissemination of economic views, theories and ideas ("economic narrative"), which legitimise this new monetary regime and prepare the imposition of a certain economic development model.
    Keywords: monetary system, monetary regime, dependent monetary regimes, monetary history
    Date: 2022–12–01
  26. By: Martin Peitz
    Abstract: Platforms in dual mode are concerned about the well-functioning of the ecosystem they manage. A regulator imposing a certain behaviour on platforms, which may amount to picking a particular market design, runs the risk of not acting in the best interest of consumers, especially in the long term, which is the ultimate goal of market contestability. When applying Art 6(5) DMA, the European Commission must make a judgement on the meaning and scope of self-preferencing; and has a discretionary power as to which possible/potential violations of the prohibition it will examine at all. This paper provides some guidance on how to determine which practices would fall under Art 6(5) DMA.
    Keywords: self-preferencing, contestability, fairness, Digital Markets Act
    JEL: K21 K23
    Date: 2023–05
  27. By: Christopher J. Cho; Timothy J. Norman; Manuel Nunes
    Abstract: In a financial exchange, market impact is a measure of the price change of an asset following a transaction. This is an important element of market microstructure, which determines the behaviour of the market following a trade. In this paper, we first provide a discussion on the market impact observed in the BTC/USD Futures market, then we present a novel multi-agent market simulation that can follow an underlying price series, whilst maintaining the ability to reproduce the market impact observed in the market in an explainable manner. This simulation of the financial exchange allows the model to interact realistically with market participants, helping its users better estimate market slippage as well as the knock-on consequences of their market actions. In turn, it allows various stakeholders such as industrial practitioners, governments and regulators to test their market hypotheses, without deploying capital or destabilising the system.
    Date: 2023–05
  28. By: Michelle W. Bowman
    Date: 2023–04–14
  29. By: Ozge Akinci; Gianluca Benigno; Serra Pelin; Jonathan Turek
    Abstract: The importance of the U.S. dollar in the context of the international monetary system has been examined and studied extensively. In this post, we argue that the dollar is not only the dominant global currency but also a key variable affecting global economic conditions. We describe the mechanism through which the dollar acts as a procyclical force, generating what we dub the “Dollar’s Imperial Circle, ” where swings in the dollar govern global macro developments.
    Keywords: Global spillovers; spillovers and spillbacks; manufacturing; global trade; global supply chain
    JEL: F00
    Date: 2023–03–01
  30. By: Jung Sakong; Alexander Zentefis
    Abstract: Low-income and Black households are less likely to visit bank branches than high-income and White households, despite the former two groups appearing to rely more on branches as means of bank participation. We assess whether unequal branch access can explain that disparity. We propose a measure of bank branch access based on a gravity model of consumer trips to bank branches, estimated using mobile device geolocation data. Residents have better branch access if branches are closer or have superior qualities that attract more visitors. Because the geolocation data is distorted to protect user privacy, we estimate the gravity model with a new econometric method that adapts the Method of Simulated Moments to handle high-dimensional fixed effects. We find no evidence that low-income communities lack access to bank branches and instead find that lower demand for bank branch products or services explains their lower branch use. But in Black communities, worse access explains their entire drop-off in branch use. For residents of these areas, weaker access is not from having lower quality branches, but from branches being located farther away from them. The results highlight parts of the country that would benefit the most from policies that expand access to banking.
    Keywords: Inequality; location economics; spatial analysis; Banking
    JEL: D14 G21 J15 R20
    Date: 2023–04–11
  31. By: Nadeem Malibari; Iyad Katib; Rashid Mehmood
    Abstract: Applications of Reinforcement Learning in the Finance Technology (Fintech) have acquired a lot of admiration lately. Undoubtedly Reinforcement Learning, through its vast competence and proficiency, has aided remarkable results in the field of Fintech. The objective of this systematic survey is to perform an exploratory study on a correlation between reinforcement learning and Fintech to highlight the prediction accuracy, complexity, scalability, risks, profitability and performance. Major uses of reinforcement learning in finance or Fintech include portfolio optimization, credit risk reduction, investment capital management, profit maximization, effective recommendation systems, and better price setting strategies. Several studies have addressed the actual contribution of reinforcement learning to the performance of financial institutions. The latest studies included in this survey are publications from 2018 onward. The survey is conducted using PRISMA technique which focuses on the reporting of reviews and is based on a checklist and four-phase flow diagram. The conducted survey indicates that the performance of RL-based strategies in Fintech fields proves to perform considerably better than other state-of-the-art algorithms. The present work discusses the use of reinforcement learning algorithms in diverse decision-making challenges in Fintech and concludes that the organizations dealing with finance can benefit greatly from Robo-advising, smart order channelling, market making, hedging and options pricing, portfolio optimization, and optimal execution.
    Date: 2023–04
  32. By: Giselli Castillo
    Abstract: Following the contemporary analysis on justice and preferences in distribution decisions, the present study analyzes the responses given by the participants in a laboratory experiment where they had to compete developing a real effort task and decide, in a distribution game, how the opportunities of winning and payments of both participants will be distributed. It is shown that preferences in distributions of opportunities of winning the game are extreme, that is, perfect equality or perfect inequality is preferred, while intermediate distributions are rare. Furthermore, those who prefer unequal opportunity distributions are also more likely to choose inequitable payments distributions.
    Date: 2023–01
  33. By: Michael S. Barr
    Date: 2023–03–09

This nep-pay issue is ©2023 by Bernardo Bátiz-Lazo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.