This paper develops a model of the lender of last resort (LOLR). In a simple one-period setting, the Central Bank (CB) should only rescue banks which are above a threshold size, thus providing an analytical basis for ¶too big to fail¶. In a dynamic setting, the CBs optimal LOLR policy is time...

This paper develops a simple model of an international lender of last resort (ILOLR). The World economy consists of many open economies, each with its own banking system and its own central bank which uses its reserves to manage a pegged exchange rate. The fragility of the banking system and the...

In this papaer we, first, by explicitly taking account of the private sectors influence and pressure on the monetary authorities, provide a more plausible representation of the motivations of the two main players. We then incorporate persistence into the model and show that the optimal policy of...

This paper develops a simple model of an international lender of last resort (ILOLR). The world economy consists of many open economies, each with a banking system and a central bank operating under a pegged exchange rate regime. The fragility of the banking system and the limited ability of a...

This paper develops a model of the lender of last resort. It provides an analytical basis for “too big too fail” and a rationale for “constructive ambiguity”. Key results are that if contagion (moral hazard) is the main concern, the Central Bank (CB) will have an excessive (little)...

In a monetary game played by he private sector and a central banks (CB), who has private information, reputation may not completely solver the CB time inconsistency problem. An alternative solution is CB Conservativeness. The optimal degree of CB Conservativeness is solved in both the...

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In this paper I shall take the causes, developments and economic consequences of the financial dislocations of the last six months as given and generally understood, having already written extensively on this subject, in a more academic vein in the Journal of International Economics and Economic...

No abstract is available.