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Discount window borrowing after 2003: The explicit reduction in implicit costs

  • Artuç, Erhan
  • Demiralp, Selva

In 2003, the Federal Reserve introduced primary credit as its main discount window lending program. This program replaced the adjustment credit program, which, subject to a number of restrictions, had generated a stigma associated with borrowing from the Federal Reserve. Lessening the stigma of borrowing was viewed as essential for reducing the reluctance to borrow from the Federal Reserve. We develop a structural model of daily borrowing. Using this model, we estimate the implicit cost associated with borrowing. Our results suggest that the stigma of borrowing is significantly reduced.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 4 (April)
Pages: 825-833

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:4:p:825-833
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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