Year: 2017
Type: article
Abstract: I have made a systematic analysis of discounting in my little book, A Program for Monetary Stability.Any answers that I might give to your questions now would be more o¤ hand and less satisfactory than that statement."-Milton Friedman I n July 1968, the Federal Reserve released a report titled "Reappraisal of the Federal Reserve Discount Mechanism."The report contained the conclusions from a series of studies conducted by the Federal Reserve System during a period of three years.One of these studies was a compilation of the responses by a large group of academics to a set of eight questions about the subject.Milton Friedman's (complete) answer to the questions appears in the quote above.I interpret Friedman as saying that if one wants to assess the extent of knowledge on how a discount window institution should be structured and operated, the best way to proceed is to study the existing literature on the subject.The objective of this essay is to summarize some of the ideas that come from doing just that.The academic literature on the lender of last resort (LLR) policy is extensive.There are (at least) two kinds of papers in that body of work: (1) papers that explain and formalize the barriers to perfect market functioning that the discount window is trying to address and then discuss how to best run a LLR policy given that situation; and (2) papers that start from the premise that there is a LLR and study in more detail particular aspects of its organization -such as, for example, I would like to thank Beth Klee, Je¤ Lacker, Allen Sirolly, Nico Trachter, Alex Wolman, John Weinberg, and Steve Williamson for comments.The views expressed in this article are my own and do not necessarily represent the views of the Federal Reserve Bank of Richmond or the Federal Reserve System.
DOI: 10.21144/eq1020101
Authors: Federal Reserve Bank of Richmond, Huberto Ennis
Institutions: Federal Reserve, Federal Reserve Bank of Richmond
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W2587637567