A Simple Model of An International Lender of Last Resort

April 1, 2000

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Format: Chicago

Haizhou Huang, and C. A. E. Goodhart A Simple Model of An International Lender of Last Resort, (USA: International Monetary Fund, 2000) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Asset and liability management, Financial crises, Financial markets

Keywords: Bank run, Banking crises, Banking crisis, Central bank, Currency crises, Currency crisis, Demand deposit, Fragility of the banking system, Illiquid bank, Interbank markets, International interbank market, International lender of last resort, Lender of last resort, Liquidity, Liquidity shock, Model of an international lender of last resort, Net reserve, WP

Publication Details

Pages:

13
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/075
Stock No:

WPIEA0752000
ISBN:

9781451849721
ISSN:

1018-5941

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