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On the Need for an International Lender of Last Resort

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  • Stanley Fischer
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    Abstract

    Is there a useful function for an international lender of last resort (ILLR)--defined as crisis lender and crisis manager? Yes for international capital flows are excessively volatile and contagious, and because an ILLR can help mitigate the effects of this instability. I examine the Bagehot rules, and their applicability in an international context, focusing on the problem of moral hazard. I argue that a critical condition for the successful operation of an ILLR, a role that is to an important extent played by the IMF, is to ensure private sector involvement in the resolution of emerging market financial crises.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.13.4.85
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    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 13 (1999)
    Issue (Month): 4 (Fall)
    Pages: 85-104

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    Handle: RePEc:aea:jecper:v:13:y:1999:i:4:p:85-104
    Note: DOI: 10.1257/jep.13.4.85
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    Keywords:

    Find related papers by JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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    1. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
    2. Thomas M. Humphrey & Robert E. Keleher, 1984. "The lender of last resort : a historical perspective," Working Paper 84-03, Federal Reserve Bank of Richmond.
    3. Robert A. Mundell, 1983. "International Monetary Options," Cato Journal, Cato Journal, Cato Institute, vol. 3(1), pages 189-210, Spring.
    4. Thomas H. Humphrey & Robert E. Keleher, 1984. "The Lender of Last Resort; A Historical Perspective," Cato Journal, Cato Journal, Cato Institute, vol. 4(1), pages 275-321, Spring/Su.
    5. Charles A. E. Goodhart & Haizhou Huang, 1999. "A model of the lender of last resort," Proceedings, Federal Reserve Bank of San Francisco.
    6. Hirsch, Fred, 1977. "The Bagehot Problem," The Manchester School of Economic & Social Studies, University of Manchester, vol. 45(3), pages 241-257, September.
    7. Mishkin, Frederic S., 1999. "Lessons from the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 709-723, August.
    8. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-560, October.
    9. Thomas M. Humphrey, 1975. "The classical concept of the lender of last resort," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 2-9.
    10. Marvin Goodfriend & Jeffrey M. Lacker, 1999. "Limited commitment and central bank lending," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-27.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. 'The Crisis as a Classic Financial Panic'
      by Mark Thoma in Economist's View on 2013-11-09 15:59:21
    2. The Crisis as a Classic Financial Panic
      by Guest Author in Credit Writedowns on 2013-11-11 00:00:05
    3. The Crisis as a Classic Financial Panic
      by Barry Ritholtz in The Big Picture on 2013-11-10 10:00:37
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