Alternative central bank credit policies for liquidity provision in a model of payments
By: David C. Mills, Jr..
Series: Finance and economics discussion series ;; 2005-55; Finance and economics discussion series (Online) ;; 2005-55.
Publisher: Federal Reserve Board
Published: 2005
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "I explore alternative central bank policies for liquidity provision in a model of payments.  I use a mechanism design approach so that agents' incentives to default are explicit and contigent on the credit policy designed.  In the first policy, the central bank invests in costly enforcement and charges an interest rate to recover costs.  I show that the second best solution is not distortionary.  In the second policy, the central bank requires collateral.  If collateral does not bear an opportunity cost, then the solution is first best.  Otherwise, the second best is distortionary because collateral serves as a binding credit constraint"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 12/8/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.