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Central Bank Price Discrimination and Financial Stability

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  • Rieder, Kilian

Abstract

This paper exploits a natural experiment to evaluate price discrimination by the central bank as a financial stability tool. In 1920, four U.S. Federal Reserve districts imposed a convex tariff on over-extended banks' central bank borrowing to halt a credit boom. To identify the policy's treatment effects, I leverage new micro data and draw on border discontinuities across other districts that raised interest rates indiscriminately for all banks. I find that price discrimination led to a significant relative reduction in lending, a more even distribution of credit and central bank borrowing across banks, and higher bank survival rates.

Suggested Citation

  • Rieder, Kilian, 2021. "Central Bank Price Discrimination and Financial Stability," CEPR Discussion Papers 16490, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16490
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    File URL: https://cepr.org/publications/DP16490
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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-

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