A Simple Model of An International Lender of Last Resort

Haizhou Huang and C. Goodhart

No 2000/075, IMF Working Papers from International Monetary Fund

Abstract: 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 domestic central bank to provide international liquidity together can cause currency and banking crises. An international interbank market can help an economy with the needed international liquidity, but with potential costs of international financial contagion. An ILOLR can play a useful role in providing international liquidity and reducing international contagion.

Keywords: WP; central bank; liquidity shock; currency crisis; International lender of last resort; banking crisis; net reserve; international interbank market; bank run; illiquid bank; demand deposit; Interbank markets; Banking crises; Liquidity; Lender of last resort; Currency crises; model of an international lender of last resort; fragility of the banking system (search for similar items in EconPapers)
Pages: 13
Date: 2000-04-01
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Citations: View citations in EconPapers (21)

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