. Freeman's conclusion that the central bank should absorb losses related to default to provide risk-sharing goes against the … concern that central banks should limit their exposure to credit risk. We extend Freeman's model by introducing moral hazard …. With moral hazard, the central bank should avoid absorbing losses, contrary to Freeman's argument. However, we show that …

the model for theoretical and quantitative analyses of policy issues facing modern central banks. …

acquired by central banks, and changes in the interest rate paid on reserves. We first extend a standard New Keynesian model to … allow a role for the central bank’s balance sheet in equilibrium determination and then consider the connections between … the strict sense and targeted asset purchases by a central bank, arguing that, according to our model, while the former is …