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A Simple Model of An International Lender of Last Resort


  • Haizhou Huang
  • C. A. E. Goodhart


This paper develops a simple model of an international lender of last resort (ILOLR). The world economy consists of many open economies, each with a banking system and a central bank operating under a pegged exchange rate regime. The fragility of the banking system and the limited ability of a domestic central bank to provide international liquidity together can cause currency and banking crises. An international interbank market can help an economy with the needed international liquidity, but with potential costs of international financial contagion. An ILOLR can play a useful role in providing international liquidity and reducing international contagion.

Suggested Citation

  • Haizhou Huang & C. A. E. Goodhart, 2000. "A Simple Model of An International Lender of Last Resort," IMF Working Papers 00/75, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/75

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    References listed on IDEAS

    1. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
    2. 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.
    3. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
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