Lender of Last Resort and moral hazard

Goodhart, C. A. E. and Lastra, Rosa (2023) Lender of Last Resort and moral hazard. CEPR Discussion Papers (DP18041). Centre for Economic Policy Research (Great Britain), London, UK.

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Abstract

In this paper we revisit the Lender of Last Resort (LOLR) function of the central bank and the associated moral hazard incentives. We argue that, from an economic perspective, the strict application of penalties to the operation of LOLR actions can make that instrument unworkable. Instead, we suggest that both penalties and publication should only be applied after such LOLR had been in place for a time. Normative frameworks ought to be adjusted in this regard.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cepr.org/publications/discussion-papers
Additional Information:	© 2023 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E59 - Other G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Date Deposited:	19 Apr 2023 12:54
Last Modified:	15 Sep 2023 23:59
URI:	http://eprints.lse.ac.uk/id/eprint/118679

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