An index of labour market flexibility is, in the usual sense, a measure of the speed with which labour markets adjust to shocks. In times of crisis, such as the sovereign debt crisis of 2010, labour market flexibility is frequently mentioned as a necessary requirement for exiting the crisis. For instance, in a paper on Greece’s adjustment program, produced by the European Commission’s Directorate-General for Economic and Financial Affairs (ECFIN), it is written that “Employment Protection Legislation has been hampering the functioning of the labour market. [...] Major labour market reforms are now advanced well ahead of the December 2010 deadline. [...] These initiatives will increase adjustment capacity of firms, ultimately boosting employment.” (ECFIN, 2010a, pp.41-42). Even before the current sovereign debt crisis, the European Commission had recommended on several occasions the reform of labour markets as a necessary condition for making the European Union the world’s most competitive economy, as stated in the Lisbon Strategy (see, for example, European Commission, 2003).
The Nervous system comprises of the brain, the spinal cord, the nerves emanating from them and their innervations of muscle fibres. The human race is superior and special to the other living beings due to the unique anatomy and physiology of human nervous system. Especially the cortex of the brain (the grey layer of the brain surface) is highly evolved and complex. Other organs of the human beings are similar or even weaker as compared to those of the other animals, but the humanrace proves superior because of the exceptional mental power & ability, as well as logic, memory and vocabulary all due to the cortex of the brain.
An important function of a central bank is to act as the Lender of Last Resort (LOLR) by providing discretionary liquidity when the interbank market is unable to meet the demand for liquidity from the banking system (for example, due to asymmetric information problems) Freixas, Giannini, Hoggarth, and Soussa (1999). Typically, the Federal Reserve (”Fed” from now on) uses its discount window (henceforth DW) facility to lend against collateral (typically financial assets) to illiquid but solvent institutions.
Like any private lender, the Fed is concerned with managing its credit risk by adjusting the terms of discount window loans and by stipulating a haircut on collateral it receives. In theory, the discount window loan rate should be set below the break-even loan rate of a private lender who is unable to discriminate between good and bad credit (see Flannery (1996)). Indeed, prior to 2003, banks in distress could borrow from the discount window at a rate below the Federal Reserve target rate.
