IDEAS home Printed from https://ideas.repec.org/p/anc/wmofir/191.html
   My bibliography  Save this paper

Interest rate and bank rescue policy

Author

Listed:
  • Emmanuel Caiazzo

    (Department of Economics and Statistics, University of Naples Federico II, CSEF, and MoFiR)

  • Alberto Zazzaro

    (University of Naples Federico II, CSEF and MoFiR)

Abstract

This paper presents a model in which the policy rate set by the central bank affects decisions about bank rescue policies when liquidity crises hit the banking system. We highlight a trade-off: maintaining an interest rate ensuring effective control over inflation escalates the costs of rescue interventions. We delve into this trade-off and determine the circumstances under which deviating from the target interest rate, thereby reducing intervention costs, enhances overall welfare. From a normative standpoint, our analysis indicates where liquidity risk is either low or high, the central bank should prioritize achieving the inflation target.

Suggested Citation

  • Emmanuel Caiazzo & Alberto Zazzaro, 2025. "Interest rate and bank rescue policy," Mo.Fi.R. Working Papers 191, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:191
    as

    Download full text from publisher

    File URL: http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir191.pdf
    File Function: First version, 2025
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anc:wmofir:191. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Maurizio Mariotti (email available below). General contact details of provider: https://edirc.repec.org/data/mfancit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.