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Overcoming Discount Window Stigma: An Experimental Investigation

Author

Listed:
  • Olivier Armantier
  • Charles A Holt
  • Itay Goldstein

Abstract

A core responsibility of the Federal Reserve is to ensure financial stability by acting as the “lender of last resort” through its discount window (DW). Historically, however, the DW has not been effective because its usage is stigmatized. In this paper, we develop a coordination game with adverse selection, and we test in the lab policies that have been proposed to mitigate DW stigma. We find that lowering the DW cost and making DW borrowing difficult to detect are ineffective, but regular random DW borrowing can overcome DW stigma. Implications for other forms of stigma in finance are discussed.

Suggested Citation

  • Olivier Armantier & Charles A Holt & Itay Goldstein, 2020. "Overcoming Discount Window Stigma: An Experimental Investigation," The Review of Financial Studies, Society for Financial Studies, vol. 33(12), pages 5630-5659.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:12:p:5630-5659.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa055
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    Citations

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    Cited by:

    1. Anna Cororaton & Samuel Rosen, 2021. "Public Firm Borrowers of the U.S. Paycheck Protection Program [The risk of being a fallen angel and the corporate dash for cash in the midst of COVID]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(4), pages 641-693.
    2. Metrick, Andrew, 2022. "Broad-Based Emergency Liquidity Programs," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 4(2), pages 86-178, April.
    3. Skylar Brooks, 2024. "Central Bank Liquidity Policy in Modern Times," Discussion Papers 2024-06, Bank of Canada.
    4. Gabriele Camera, 2024. "Introducing New Forms of Digital Money: Evidence from the Laboratory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(1), pages 153-184, February.
    5. Olivier Armantier & Charles Holt, 2024. "Can Discount Window Stigma Be Cured? An Experimental Investigation," Staff Reports 1103, Federal Reserve Bank of New York.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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