In the new paper “Policy Uncertainty, Lender of Last Resort and the Real Economy,” published in the Journal of Monetary Economics on December 14, 2020, assistant professor of economics Martina Jasova examined with her colleagues “the lending and real effects of a reduction in lender of last resort (LOLR) policy uncertainty,” according to the abstract. In many countries, the LOLR is the central bank. For banks, it’s the institution they turn to when they need assistance with daily funds.
Jasova, who uses microdata to answer macro financial questions, such as about the labor market and central banks, examined microdata from banks, loans, and financial firms in Portugal for the paper. Jasova and fellow researchers found that by minimizing the uncertainty of LOLR policy, banks are more likely to lend, which positively affects investments and employment.