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Rediscounting under aggregate risk (1999)
| Venue: | Journal of Monetary Economics |
| Citations: | 14 - 2 self |
BibTeX
@ARTICLE{Freeman99rediscountingunder,
author = {Scott Freeman},
title = {Rediscounting under aggregate risk},
journal = {Journal of Monetary Economics},
year = {1999},
pages = {197--216}
}
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Abstract
This paper compares three institutions that offer an elastic currency- open market operations, a discount window, a private, banknote-issuing clearinghouse- in an economy with financial markets otherwise hampered by a lack of liquidity. When this economy is subject to aggregate financial shocks, these alternative forms of central banking are shown to differ in their implications for risk-sharing and moral hazard. Interesting implications include i) central bank losses and monetary innovations that are part of an efficient equilibrium; and ii) desirable quantity restrictions at the discount window.
Keyphrases
aggregate risk discount window banknote-issuing clearinghouse financial market elastic currency open market operation efficient equilibrium central bank loss interesting implication alternative form desirable quantity restriction monetary innovation central banking financial shock moral hazard
