Abstract:This paper studies a systemic risk control problem by the central bank, which dynamically plans monetary supply for the interbank system with borrowing and lending activities. Facing both heterogeneity among banks and the common noise, the central bank aims to find an optimal strategy to minimize the average distance between log-monetary reserves and some prescribed capital levels for all banks. A relaxed control approach is adopted, and an optimal randomized control can be obtained in the system with finite b… Show more
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