This paper extends a recent study on financial dollarization of Broda and Levy Yeyati (2003) by introducing a lending of last resort intervention contingent both on banks' portfolio currency composition and on banks' monitoring effort. We show that when the lender of last resort commitment to intervene is matched with some operational discretion, according to a "constructive ambiguity" approach, then the provision of emergency liquidity may be crucial to enable distressed, but well-behaved banks, to survive and finance "high quality" investment projects.
Corrado, G. (2005). Lending of last resort, bank monitoring and endogenous financial dollarization. In H. Arbelaez, R.W. Click (a cura di), Latin American financial markets: developments in financial innovations (pp. 163-188). Emerald [10.1016/S1569-3767(05)05009-0].
Lending of last resort, bank monitoring and endogenous financial dollarization
CORRADO, GERMANA
2005-01-01
Abstract
This paper extends a recent study on financial dollarization of Broda and Levy Yeyati (2003) by introducing a lending of last resort intervention contingent both on banks' portfolio currency composition and on banks' monitoring effort. We show that when the lender of last resort commitment to intervene is matched with some operational discretion, according to a "constructive ambiguity" approach, then the provision of emergency liquidity may be crucial to enable distressed, but well-behaved banks, to survive and finance "high quality" investment projects.| File | Dimensione | Formato | |
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