A Simple Model of An International Lender of Last Resort

Author: Mr. Haizhou Huang and Mr. C. A. E. Goodhart

Volume/Issue: Volume 2000 Issue 075

Publication date: April 2000

ISBN: 9781451849721

$20.00

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Finance , Economics- Macroeconomics , WP , central bank , liquidity shock , currency crisis , International lender of last resort , banking crisis , net reserve , international interbank market , bank run , illiquid bank , demand deposit , Interbank markets , Banking crises , Liquidity , Lender of last resort , Currency crises , model of an international lender of last resort , fragility of the banking system

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Summary

This paper develops a simple model of an international lender of last resort (ILOLR). The world economy consists of many open economies, each with a banking system and a central bank operating under a pegged exchange rate regime. The fragility of the banking system and the limited ability of a domestic central bank to provide international liquidity together can cause currency and banking crises. An international interbank market can help an economy with the needed international liquidity, but with potential costs of international financial contagion. An ILOLR can play a useful role in providing international liquidity and reducing international contagion.