This paper analyzes a government's incentives to provide fi nancial assistance to a public bank which is hit by a liquidity shock. We show that discretionary decisions about emergency liquidity assistance result in either excessively small or excessively large liquidity injections in a wide...

This paper develops a theoretical model which explains several stylized facts observed in the euro area interbank market after the collapse of Lehman Brothers in 2008. The model shows that if costs of participating in the interbank market are high, the central bank assumes an intermediary...

This paper develops a theoretical model which explains several stylized facts observed in the euro area interbank market after the collapse of Lehman Brothers in 2008. The model shows that if transaction costs are high, banks with a liquidity deficit will prefer to borrow liquidity from the...

This paper shows that depending on the distribution of banks' uncertain liquidity needs and on how monetary policy is implemented, frictions in the interbank market may reinforce the effectiveness of monetary policy. These frictions imply that with its lending and deposit facilities the central...

This paper shows that depending on the distribution of banks' uncertain liquidity needs and on how monetary policy is implemented, frictions in the interbank market may reinforce the effectiveness of monetary policy. The frictions imply that with its lending and deposit facilities the central...

This paper shows that depending on the distribution of banks' uncertain liquidity needs and on how monetary policy is implemented, frictions in the interbank market may reinforce the effectiveness of monetary policy. These frictions imply that with its lending and deposit facilities the central...