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Atlanta Fed Working Papers

A General Equilibrium Analysis of Check Float

James McAndrews and William Roberds
Federal Reserve Bank of Atlanta
Working Paper 97-4
October 1997

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Households and businesses in the United States prefer to use check payment over less costly, electronic means of payment. Earlier studies have focused on check "float," that is, the time lag between receipt and clearing, as a potential explanation for the continued popularity of checks. An underlying assumption of these studies is that check float operates as a pure transfer from payee to payor. We construct a simple general equilibrium model in which payments are made by check. In general equilibrium, check float does not act as a pure transfer. If float can be priced into market transactions, then it has no effect on equilibrium allocations. If float is not priced into market transactions, then it acts as a distorting tax. Our results are consistent with the view that float is a significant factor behind the continued popularity of check payment. Our results are also consistent with recent data that indicate that the average value of float (per check) is small.

JEL classification: E58, G21, G28

Key words: checks, float, payments


The authors thank Zsolt Becsi and Scott Freeman for helpful discussions leading up to this paper. They also thank John Bryant, Jerry Dwyer, Bob Eisenbeis, Marco Espinosa, Steve Russell and Bruce Smith for helpful comments. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Banks of Atlanta or New York or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to James McAndrews, Research Department, Federal Reserve Bank of New York, 33 Liberty Street, New York, New York 10045-0001, 212/720-5000, jamie.mcandrews@ny.frb.org, and William Roberds, Research Department, Federal Reserve Bank of Atlanta, 104 Marietta Street, N.W., Atlanta, Georgia 30303-2713, 404/498-8970, 404/498-8956 (fax), william.roberds@atl.frb.org.

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