 The European Central Bank as Lender of Last Resort in the Government Bond MarketsCESifo Economic Studies, 2013, vol. 59, issue 3, 520-535 Abstract: The sovereign debt crisis has made it clear that central banking is more than keeping inflation low. Central banks are also responsible for financial stability. An essential tool in maintaining financial stability is provided by the capacity of the central bank to be the lender of last resort in the banking system. In this article, I argue that the ECB should also be the lender of last resort in the government bond markets of the monetary union, very much like the central banks in countries that issue debt in their own currencies are. This is necessary to prevent countries from being pushed into bad equilibria by self-fulfilling fears of liquidity crises in a monetary union. The ECB decided to take on this role in 2012. I evaluate this decision and I discuss the different arguments formulated by those who oppose this new role of the ECB. (JEL codes: E2, E5, and F4) Copyright The Author 2013. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press. Date: 2013 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:cesifo:v:59:y:2013:i:3:p:520-535 Ordering information: This journal article can be ordered from Access Statistics for this article CESifo Economic Studies is currently edited by Panu Poutvaara More articles in CESifo Economic Studies from CESifo Group Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC. |
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