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Implementing an International Lender of Last Resort

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  • Tobias Knedlik

Abstract

Current research discusses various general frameworks for installing an international lender of last resort (ILOLR). However, it remains unclear how the ILOLR should actually operate. This paper discusses six different options of construction of an ILOLR who supports central banks in the case of currency crises. The paper concludes that the cost efficient version of the ILOLR would be direct interventions by the IMF by the use of IMF resources and the right to dispose additional reserves from central banks. The paper considers measures of cost efficiency, such as cost of borrowing, intervention, and sterilization and moral hazard problems.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 20.

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Date of creation: Nov 2006
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Handle: RePEc:iwh:dispap:20-06

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Keywords: international lender of last resort; International Monetary Fund; currency crises;

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References

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  1. Jane Sneddon Little & Giovanni P. Olivei, 1999. "Rethinking the International Monetary System: an overview," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 3-24.
  2. Kenneth Rogoff, 1999. "International Institutions for Reducing Global Financial Instability," NBER Working Papers 7265, National Bureau of Economic Research, Inc.
  3. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries: The Role of Corruption," NBER Working Papers 10093, National Bureau of Economic Research, Inc.
  4. Stanley Fischer, 2002. "Financial Crises and Reform of the International Financial System," NBER Working Papers 9297, National Bureau of Economic Research, Inc.
  5. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April.
  6. Barry J. Eichengreen, 1999. "Policy making in an integrated world: from surveillance to ...?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 205-241.
  7. Abdul Abiad, 2003. "Early Warning Systems," IMF Working Papers 03/32, International Monetary Fund.
  8. P. Burger & T. Knedlik, 2004. "The Mci As A Monetary Policy Guide In A Small, Open Emerging Market Economy," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 365-383, 06.
  9. Haizhou Huang & Shang-Jin Wei, 2003. "Monetary Policies for Developing Countries," IMF Working Papers 03/183, International Monetary Fund.
  10. J.A. Kregel, 1998. "Yes, "It" Did Happen Again - A Minsky Crisis Happened in Asia," Macroeconomics 9805017, EconWPA.
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