Lender of Last Resort and moral hazard
Goodhart, C. A. E. & Lastra, R.
(2023).
Lender of Last Resort and moral hazard.
(CEPR Discussion Papers DP18041).
Centre for Economic Policy Research (Great Britain).
In this paper we revisit the Lender of Last Resort (LOLR) function of the central bank and the associated moral hazard incentives. We argue that, from an economic perspective, the strict application of penalties to the operation of LOLR actions can make that instrument unworkable. Instead, we suggest that both penalties and publication should only be applied after such LOLR had been in place for a time. Normative frameworks ought to be adjusted in this regard.
| Item Type | Working paper |
|---|---|
| Copyright holders | © 2023 The Authors |
| Departments | LSE > Research Centres > Financial Markets Group |
| Date Deposited | 19 Apr 2023 |
| URI | https://researchonline.lse.ac.uk/id/eprint/118679 |
Explore Further
- E50 - General
- E58 - Central Banks and Their Policies
- E59 - Other
- G18 - Government Policy and Regulation
- https://cepr.org/ (Publisher)
- https://www.fmg.ac.uk/people/charles-goodhart (Author)
- https://cepr.org/publications/dp18041
- https://cepr.org/publications/discussion-papers (Official URL)