| Title | A quantitative model of international lending of last resort |
|---|---|
| ID_Doc | 70575 |
| Authors | Gete, P; Melkadze, G |
| Title | A quantitative model of international lending of last resort |
| Year | 2020 |
| Published | |
| Abstract | We analyze banking crises and lending of last resort (LOLR) in a quantitative model of financial frictions with bank defaults. LOLR policies generate a tradeoff between financial fragility (due to more highly leveraged banks) and milder crises since the policies are effective once in a crisis. In the calibrated model, the crisis mitigation effect dominates the moral hazard problem and the economy is better off having access to a lender of last resort. We characterize the conditions under which pools of small economies can be sustainable LOLRs. In addition, we assess the ability of China - a country with ample reserves - to be a sustainable international LOLR. (C) 2020 Published by Elsevier B.V. |
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