òòò½Íø Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Fighting Crises with Secrecy
òòò½Íø Journal: Macroeconomics
vol. 12,
no. 4, October 2020
(pp. 218–45)
(Complimentary)
Abstract
How does central bank lending during a crisis restore confidence? Emergency lending facilities that are opaque (in that names of borrowers are kept secret) raise the perceived average quality of bank assets in the economy, creating an information externality that prevents runs. Stigma (the cost of a bank's participation at the lending facility becoming public) is desirable to implement opacity as an equilibrium outcome, as no bank wants to reveal its participation status. The central bank's key policy instrument for limiting the use of lending facilities while maintaining secrecy is the haircut applied to bank assets used as collateral.Citation
Gorton, Gary, and Guillermo Ordoñez. 2020. "Fighting Crises with Secrecy." òòò½Íø Journal: Macroeconomics 12 (4): 218–45. DOI: 10.1257/mac.20190169Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages