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dc.contributor.authorChapman, James T. E.en_US
dc.contributor.authorMartin, Antoineen_US
dc.date.accessioned2012-08-17T14:25:10Z-
dc.date.available2012-08-17T14:25:10Z-
dc.date.issued2007en_US
dc.identifier.urihttp://hdl.handle.net/10419/60549-
dc.description.abstractIn a 1999 paper, Freeman proposes a model in which discount window lending and open market operations have different outcomes—an important development because in most of the literature the results of these policy tools are indistinguishable. Freeman’s conclusion that the central bank should absorb losses related to default to provide risk-sharing goes against the concern that central banks should limit their exposure to credit risk. We extend Freeman’s model by introducing moral hazard. With moral hazard, the central bank should avoid absorbing losses, contrary to Freeman’s argument. However, we show that the outcomes of discount window lending and open market operations can still be distinguished in this new framework. The optimal policy would be for the central bank to make a restricted number of creditors compete for funds. By restricting the number of agents, the central bank can limit the moral hazard problem. And by making agents compete with each other, the central bank can exploit market information that reveals the state of the economy.en_US
dc.language.isoengen_US
dc.publisherFederal Reserve Bank of New York New York, NYen_US
dc.relation.ispartofseriesStaff Report, Federal Reserve Bank of New York 296en_US
dc.subject.jelG20en_US
dc.subject.jelE58en_US
dc.subject.ddc330en_US
dc.subject.keywordpayment systems, money, open market operations, discount windowen_US
dc.subject.stwGesamtwirtschaftliche Liquiditäten_US
dc.subject.stwZentralbanken_US
dc.subject.stwOffenmarktpolitiken_US
dc.subject.stwDiskontpolitiken_US
dc.subject.stwKreditrisikoen_US
dc.subject.stwMoral Hazarden_US
dc.subject.stwTheorieen_US
dc.titleRediscounting under aggregate risk with moral hazarden_US
dc.typeWorking Paperen_US
dc.identifier.ppn541549081en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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