The first part of the paper analyzes the inflationary risks associated with price liberalization, the welfare costs of inflation and the difficulties of East European central banks in pursuing non-inflationary policies. The main obstacles are the low credibility of stabilization policies and a...

Some central banks have a reputation for being secretive. A justification for this behaviour that we find in the literature is that being transparent about operations and beliefs hinders the central bank in achieving the best outcome. In other words, a central bank needs flexibility and...

In response to the financial crisis of 2007-2010, many central banks are getting involved in macroprudential supervision. Central bank communication will constitute a central policy tool for that purpose. The paper asks how such communication will affect financial markets, exploiting the fact...

There has been a resurgence of interest in currency boards as a possible approach to achieving a stable currency in newly established or hyperinflationary financial systems. This paper draws attention to one of the more successful currency board experiences, namely that of Ireland. We review the...

We study the effects of Central Bank transparency on inflation and the output gap. We thus first identify a small analytical model, which concludes that transparency affects the variability of inflation and output and not their average levels. Then we examine whether this conjecture holds...

We study liquidity transfers between banks through the interbank borrowing and asset sale markets when (i) surplus banks providing liquidity have market power, (ii) there are frictions in the lending market due to moral hazard, and (iii) assets are bank-specific. We show that when the outside...

This Paper aims to explain the sharp rise in unhedged foreign borrowing by South East Asian corporations in the few years prior to the crisis despite remarkably little change in fundamentals. The crucial element of our story is the complementarity between decisions of firms and of the central...

This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn, and a lender of last resort (LLR) that bases its decision on supervisory information on the quality of the bank’s assets. The bank is subject to a capital requirement and chooses the liquidity...

The establishment of the European Central Bank (ECB) presents a rare opportunity to define the operations of a central bank with no prior track record. Before the ECB specifies an, as yet undefined, operational target this paper asks what might be learnt from the recent experience of inflation...

Repo auctions are multiunit auctions regularly used by central banks to inject liquidity into the banking sector. Banks have a fundamental need to participate because they have to satisfy reserve requirements. Superficially, repo auctions resemble treasury auctions; the format and rules are...