Emergency liquidity provision to public banks: rules versus discretion

Hauck, A. ORCID: 0000-0002-6949-6732 and Vollmer, U., 2013. Emergency liquidity provision to public banks: rules versus discretion. European Journal of Political Economy, 32, pp. 193-204. ISSN 0176-2680

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This paper analyzes a government's incentives to provide financial assistance to a public bank which is hit by a liquidity shock. We show that discretionary decisions about emergency liquidity assistance result in either excessively small or excessively large liquidity injections in a wide variety of circumstances. Also, adding a lender of last resort does not generally ensure a socially optimal policy. However, optimal rules exist that align the preferences of the government and/or a lender of last resort with social preferences by either subsidizing or taxing liquidity aid.

Item Type: Journal article
Publication Title: European Journal of Political Economy
Creators: Hauck, A. and Vollmer, U.
Publisher: Elsevier
Date: 2013
Volume: 32
ISSN: 0176-2680
S0176268013000591Publisher Item Identifier
Divisions: Schools > Nottingham Business School
Record created by: Jonathan Gallacher
Date Added: 22 Feb 2019 08:36
Last Modified: 22 Feb 2019 08:39
URI: https://irep.ntu.ac.uk/id/eprint/35791

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