Overcoming Discount Window Stigma: An Experimental Investigation

Olivier Armantier, Charles Holt and Itay Goldstein

The Review of Financial Studies, 2020, vol. 33, issue 12, 5630-5659

Abstract: A core responsibility of the Federal Reserve is to ensure financial stability by acting as the “lender of last resort” through its discount window (DW). Historically, however, the DW has not been effective because its usage is stigmatized. In this paper, we develop a coordination game with adverse selection, and we test in the lab policies that have been proposed to mitigate DW stigma. We find that lowering the DW cost and making DW borrowing difficult to detect are ineffective, but regular random DW borrowing can overcome DW stigma. Implications for other forms of stigma in finance are discussed.

JEL-codes: C92 E58 G01 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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