A General Equilibrium Analysis of Check Float

Posted: 3 Nov 1999

See all articles by James McAndrews

James McAndrews

Wharton Financial Institutions Center

William Roberds

Federal Reserve Bank of Atlanta

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Abstract

Households and businesses in the U.S. prefer to use checks over less costly means of payment. Earlier studies have focused on check "float" as an explanation for the continued popularity of this seemingly inefficient technology. We construct a general equilibrium model of check payment, and show that the presence of float does not necessarily lead to inefficiency. However, we also identify two potential sources of inefficiency associated with check float: (1) if float is not always priced, then it acts as distorting tax, and (2) inefficiencies can result if people engage in costly activities designed to accelerate check presentment.

JEL Classification: E58, G21, G28

Suggested Citation

McAndrews, James and Roberds, William, A General Equilibrium Analysis of Check Float. Available at SSRN: https://ssrn.com/abstract=191517

James McAndrews

Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
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William Roberds (Contact Author)

Federal Reserve Bank of Atlanta ( email )

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Atlanta, GA 30309-4470
United States
404-498-8970 (Phone)
404-498-8956 (Fax)

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