The European Central Bank: Lender of last resort in the government bond markets?

Arbeitspapier

The sovereign debt crisis has made it clear that central banking is more than keeping inflation low. Central banks are also responsible for financial stability. An essential tool in maintaining financial stability is provided by the capacity of the central bank to be the lender of last resort in the banking system. In this paper I argue that the ECB should also be the lender of last resort in the government bond markets of the monetary union, very much like the central banks in countries that issue debt in their own currencies are. This is necessary to prevent countries from being pushed into bad equilibria by self-fulfilling fears of liquidity crises in a monetary union. I also survey the different arguments that have been formulated by opponents of the view that the ECB should be the lender of last resort in the government bond markets.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3569

Classification and Topics

• Classification: Wirtschaft ; International Monetary Arrangements and Institutions
• Subject: lender of last resort ; European Central Bank ; moral hazard ; inflation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De Grauwe, Paul
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/52475
• Last update: 10.03.2025, 11:43 AM CET