Rediscounting under aggregate risk

Article Abstract:

The effect of aggregate risk on the desirability of providing liquidity was investigated using a model of the payments system in which people make some purchases with debt and the repayment of debt necessitates a final payment in the form of fiat money. The model also assumes that there is an active market in second-hand debt and considers the implications of rediscounting of private debt. It was found that the central bank's provision of liquidity leads to a more even and efficient distribution of default risk. Furthermore, open market operations reduce the risk to which purchasers of debt are exposed. The use of private clearinghouses to provide liquidity despite the presence of aggregate default risk was considered.

Econometrics & Model Building, Models, Risk (Economics), Econometrics, Debt, Discount (Finance), Liquidity (Finance), Payment, Business models

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Derivatives regulation: implications for central banks

Article Abstract:

A study aimed at determining the impact of derivatives markets on monetary policy and bank supervision reveals that both derivatives users and dealers encounter small default risks. Widespread default or systemic risk, due to derivatives is a lesser problem because of improved sharing of existing risks. Nevertheless, there are significant internal control problems that occur from the use of derivatives, just as with most other financial markets.

Analysis, Derivatives (Financial instruments)

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Bubbles and capital flow volatility: causes and risk management

Article Abstract:

Emerging economic markets constitute a potential base for financial bubbles including real estate bubbles. Importance of bubbles in provision of stores of value leading to decrease in capital outflows is discussed. Risk management policies to alleviate the bubble risk are presented.

United States, Methods, Economic aspects, Causes of, Capital movements, Emerging markets

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