Economic Themes (2010) 48 (4) 1, 481-498

CURRENT CONTROVERSIES OF THE CENTRAL BANK ‘S COMPETENCES WITH REGARD TO ITS TRADITIONAL FUNCTIONS


Borko Krstić, Srđan Marinković, Mirjana Jemović

Abstract: The paper represents both theoretical and empirical analysis of mutual dependence of three basic roles of central banks: monetary regulation, supervision and lender of last resort. After reviewing the main institutional dilemmas pro et contra institutional separation and unification, we proceed with analyzing the case of recent Serbian liquidity disturbance. Correlation matrix is delivered for the time series of five-year monthly data and for subsections: prior the crisis, crisis period itself, and after the crisis. It has been found that liquidity shortage is solved almost solely by required reserves policy, which is accommodated to the nature of the shock. Lender of last resort arrangements played a secondary role at most.

Keywords:  monetary policy; lender of last resort; liquidity squeeze; Serbian banking industry; time series correlation

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