Please use this identifier to cite or link to this item:
De Grauwe, Paul
Year of Publication: 
Series/Report no.: 
CESifo working paper: Monetary Policy and International Finance 3569
The sovereign debt crisis has made it clear that central banking is more than keeping inflation low. Central banks are also responsible for financial stability. An essential tool in maintaining financial stability is provided by the capacity of the central bank to be the lender of last resort in the banking system. In this paper I argue that the ECB should also be the lender of last resort in the government bond markets of the monetary union, very much like the central banks in countries that issue debt in their own currencies are. This is necessary to prevent countries from being pushed into bad equilibria by self-fulfilling fears of liquidity crises in a monetary union. I also survey the different arguments that have been formulated by opponents of the view that the ECB should be the lender of last resort in the government bond markets.
lender of last resort
European Central Bank
moral hazard
Document Type: 
Working Paper

Files in This Item:
242.04 kB

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.