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Transparency and Ambiguity in Central Bank Safety Net Operations

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  • Charles Enoch
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    Abstract

    To mitigate the risks of contagion from problems arising in the banking sector, many countries operate some form of banking sector safety net. Such safety nets generally involve a judicious mixture of transparency and ambiguity. This ambiguity may be important to counter moral hazard effects but may lead to excessive forbearance in the face of banking problems. While the scope for ambiguity has been declining, some ambiguity in the handling of individual institutions remains. In any case, ex post transparency is essential for reviewing the propriety of any assistance and preserving the authorities’ future reputation and policy credibility.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 97/138.

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    Length: 28
    Date of creation: 01 Oct 1997
    Date of revision:
    Handle: RePEc:imf:imfwpa:97/138

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    Cited by:
    1. Alina Carare & Mark R. Stone, 2003. "Inflation Targeting Regimes," IMF Working Papers 03/9, International Monetary Fund.
    2. Jean-Yves Gnabo & Christelle Lecourt, 2008. "Foreign Exchange Intervention Policy: With or Without Transparency? The Case of Japan," Economie Internationale, CEPII research center, issue 113, pages 5-34.
    3. Peter Stella, 2009. "The Federal Reserve System Balance Sheet-What Happened and Why it Matters," IMF Working Papers 09/120, International Monetary Fund.
    4. Xavier Freixas & Curzio Giannini & Glenn Hoggarth & Farouk Soussa, 2000. "Lender of Last Resort: What Have We Learned Since Bagehot?," Journal of Financial Services Research, Springer, vol. 18(1), pages 63-84, October.
    5. Jácome, Luis I. & Vázquez, Francisco, 2008. "Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean," European Journal of Political Economy, Elsevier, vol. 24(4), pages 788-801, December.
    6. Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies Be Added to the Central Bank toolkit? a Review of the Experience so Far," IMF Working Papers 11/145, International Monetary Fund.
    7. Mark R. Stone, 2003. "Inflation Targeting Lite," IMF Working Papers 03/12, International Monetary Fund.
    8. Beine, Michel & Janssen, Gust & Lecourt, Christelle, 2009. "Should central bankers talk to the foreign exchange markets?," Journal of International Money and Finance, Elsevier, vol. 28(5), pages 776-803, September.
    9. Luis Jácome & Francisco Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," Macroeconomics 0508011, EconWPA.
    10. Goodhart, Charles A.E. & Huang, Haizhou, 2005. "The lender of last resort," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1059-1082, May.
    11. Mark R. Stone, 2003. "Greater Monetary Policy Transparency for the G3," IMF Working Papers 03/218, International Monetary Fund.
    12. Vinogradov, Dmitri, 2012. "Destructive effects of constructive ambiguity in risky times," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1459-1481.

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