Alternative central bank credit policies for liquidity provision in a model of payments

• Published in: Journal of monetary economics Vol. 53; no. 7; pp. 1593 - 1611
• Main Author: Mills, David C.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.10.2006; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Monetary Economics
• Subjects: Bank liquidity; Central banking; Central banks; Collateral; Credit; Credit policy; Liquidity; Monetary economics; Payment systems; Payments; Payments systems; Studies; E40; Liquidity; E58; Central banking; Collateral; C73; Payments systems

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 contingent on the credit policy designed. In the first policy, the central bank invests in costly enforcement and charg...