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This paper provides a framework to analyse emergency liquidity assistance of central banks on financial markets in … response to aggregate and idiosyncratic liquidity shocks. The model combines the microeconomic view of liquidity as the ability … to sell assets quickly and at low costs and the macroeconomic view of liquidity as a medium of exchange that influences …
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This paper investigates the effect of financial instability on the design of monetary policy rule for a small open economy. We find evidence that optimal monetary policy rule reacts directly to financial imbalances and, as a result, to the real exchange rate movements. However, optimal rule...
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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 … preferences by either subsidizing or taxing liquidity aid …
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