Macroeconomics Seminar Series - Romina Ruprecht (Federal Reserve Board)

Title: Rethinking Stigma at the Discount Window: A model of liquidity-dependent borrowing behavior Authors: Sriya Anbil, Mark Carlson, Romina Ruprecht (all Board of Governors

Abstract: We show that discount window stigma varies with overall liquidity conditions.  When central bank reserves are abundant, financially sound banks can easily borrow in money markets, whereas weaker banks struggle and are more likely to borrow from the discount window---reinforcing its stigma.  As reserves decline and liquidity conditions tighten, sound banks are more likely to turn to the discount window; that reduces discount window stigma.  We develop a dynamic general equilibrium model with a frictional money market to capture these dynamics.