IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Dual liquidity crises under alternative monetary frameworks: a financial accounts perspective

  • Bindseil, Ulrich
  • Winkler, Adalbert

This paper contributes to the literature on liquidity crises and central banks acting as lenders of last resort by capturing the mechanics of dual liquidity crises, i.e. funding crises which encompass both the private and the public sector, within a closed system of financial accounts. We analyze how the elasticity of liquidity provision by a central bank depends on the international monetary regime in which the relevant country operates and on specific central bank policies like collateral policies, monetary financing prohibitions and quantitative borrowing limits imposed on banks. Thus, it provides a firm basis for a comparative analysis of the ability of central banks to absorb shocks. Our main results are as follows: (1) A central bank that operates under a paper standard with a flexible exchange rate and without a monetary financing prohibition and other limits of borrowings placed on the banking sector is most flexible in containing a dual liquidity crisis. (2) Within any international monetary system characterized by some sort of a fixed exchange rate, including the gold standard, the availability of inter-central bank credit determines the elasticity of a crisis country’s central bank in providing liquidity to banks and financial markets. (3) A central bank of a euro area type monetary union has a similar capacity in managing dual liquidity crises as a country central bank operating under a paper standard with a flexible exchange rate as long as the integrity of the monetary union is beyond any doubt. JEL Classification: E50, E58

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by European Central Bank in its series Working Paper Series with number 1478.

in new window

Date of creation: Oct 2012
Date of revision:
Handle: RePEc:ecb:ecbwps:20121478
Contact details of provider: Postal: 60640 Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  2. Winkler, Adalbert, 2011. "The joint production of confidence: lessons from nineteenth-century US commercial banks for twenty-first-century Euro area governments," Financial History Review, Cambridge University Press, vol. 18(03), pages 249-276, December.
  3. Ulrich Bindseil & Philippine Cour-Thimann & Philipp König, 2012. "Target2 and Cross-border Interbank Payments during the Financial Crisis," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(SPECIALIS), pages 83-92, 02.
  4. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  5. Schnabel, Isabel, 2004. "The German Twin Crisis of 1931," The Journal of Economic History, Cambridge University Press, vol. 64(03), pages 822-871, September.
  6. Sinn, Hans-Werner & Wollmershäuser, Timo, 2012. "Target loans, current account balances and capital flows: The ECB’s rescue facility," Munich Reprints in Economics 19556, University of Munich, Department of Economics.
  7. Ritschl, Albrecht, 1996. "Sustainability of High Public Debt: What the Historical Record Shows," CEPR Discussion Papers 1357, C.E.P.R. Discussion Papers.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
    [This Time Is Different: Eight Centuries of Financial Folly]
    ," Introductory Chapters, Princeton University Press.
  9. Benjamin M. Friedman, 1990. "Implications of Corporate Indebtedness for Monetary Policy," NBER Working Papers 3266, National Bureau of Economic Research, Inc.
  10. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2004. "The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility," NBER Working Papers 10396, National Bureau of Economic Research, Inc.
  11. Dale F. Gray; & Robert C. Merton & Zvi Bodie, 2009. "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability," Working Papers Central Bank of Chile 541, Central Bank of Chile.
  12. Miron, Jeffrey A, 1986. "Financial Panics, the Seasonality of the Nominal Interest Rate, and theFounding of the Fed," American Economic Review, American Economic Association, vol. 76(1), pages 125-40, March.
  13. Charles Goodhart, 1988. "The Evolution of Central Banks," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262570734, June.
  14. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  15. Carl E. Walsh, 2011. "Central Bank Independence Revisited," Economic Papers, The Economic Society of Australia, vol. 30(1), pages 18-22, 03.
  16. Andres Velasco & Roberto Chang, 2000. "Exchange-Rate Policy for Developing Countries," American Economic Review, American Economic Association, vol. 90(2), pages 71-75, May.
  17. 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.
  18. Gorton, Gary & Mullineaux, Donald J, 1987. "The Joint Production of Confidence: Endogenous Regulation and Nineteenth Century Commercial-Bank Clearinghouses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 457-68, November.
  19. Bindseil, Ulrich & Jabłecki, Juliusz, 2011. "A structural model of central bank operations and bank intermediation," Working Paper Series 1312, European Central Bank.
  20. Bordo, Michael D., 1986. "Explorations in monetary history: A survey of the literature," Explorations in Economic History, Elsevier, vol. 23(4), pages 339-415, October.
  21. Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," Research Department Publications 4504, Inter-American Development Bank, Research Department.
  22. Schubert,Aurel, 2006. "The Credit-Anstalt Crisis of 1931," Cambridge Books, Cambridge University Press, number 9780521030298, October.
  23. Charles W. Calomiris, 2009. "Banking Crises and the Rules of the Game," Working Papers 2009/14, Czech National Bank, Research Department.
  24. Ursula Vogel & Adalbert Winkler, 2012. "Do Foreign Banks Stabilize Cross-Border Bank Flows and Domestic Lending in Emerging Markets? Evidence from the Global Financial Crisis," Comparative Economic Studies, Palgrave Macmillan, vol. 54(3), pages 507-530, September.
  25. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  26. Fleisig, Heywood W, 1976. "War-Related Debts and the Great Depression," American Economic Review, American Economic Association, vol. 66(2), pages 52-58, May.
  27. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
  28. Isabel Schnabel, 2005. "The Role of Liquidity and Implicit Guarantees in the German Twin Crisis of 1931," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2005_5, Max Planck Institute for Research on Collective Goods.
  29. Stijn Claessens & Neeltje van Horen, 2011. "Foreign Banks: Trends, Impact and Financial Stability," DNB Working Papers 330, Netherlands Central Bank, Research Department.
  30. Buch, Claudia M & Heinrich, Ralph P, 1999. "Twin Crises and the Intermediary Role of Banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(4), pages 313-23, October.
  31. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  32. Eichengreen, Barry, 1995. "Central bank co-operation and exchange rate commitments: the classical and interwar gold standards compared," Financial History Review, Cambridge University Press, vol. 2(02), pages 99-117, October.
  33. Milton Friedman & Anna Jacobson Schwartz, 1965. "Why Was Monetary Policy So Inept?," NBER Chapters, in: The Great Contraction, 1929–33, pages 111-123 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20121478. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.