Boston Fed paper investigates uncertainty in interbank markets
A working paper, published by the Federal Reserve Bank of Boston on August 16, finds that the strength of the US interbank market may contribute to a build-up of uncertainty, causing a collapse. To restart lending, government intervention may be required to correct for information externalities.
Author Matthew Pritsker develops a model of uncertainty in the US interbank lending market, suggesting the ability of the market to cope with high uncertainty in good times may lead to a market collapse
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