Discussion paper
DP16490 Central Bank Price Discrimination and Financial Stability
This paper exploits a natural experiment to evaluate price discrimination by the central bank as a financial stability tool. In 1920, four U.S. Federal Reserve districts imposed a convex tariff on over-extended banks' central bank borrowing to halt a credit boom. To identify the policy's treatment effects, I leverage new micro data and draw on border discontinuities across other districts that raised interest rates indiscriminately for all banks. I find that price discrimination led to a significant relative reduction in lending, a more even distribution of credit and central bank borrowing across banks, and higher bank survival rates.
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