A Simple Model of an International Lender of Last Resort
AbstractThis paper develops a simple model of an international lender of last resort (ILOLR). The World economy consists of many open economies, each with its own banking system and its own central bank which uses its reserves to manage a pegged exchange rate. The fragility of the banking system and the limited ability of a domestic cent-rate. 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 this risk-sharing also comes with potential costs of international financial contagion. Such international contagious risk is much higher when there is an international interbank market than otherwise. An ILOLR can play a useful role in providing international liquidity and reducing international contagion.
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp336.
Date of creation: Sep 1999
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Other versions of this item:
- Haizhou Huang & C. A. E. Goodhart, 2000. "A Simple Model of an International Lender of Last Resort," IMF Working Papers 00/75, International Monetary Fund.
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