Efficient Bailouts?

Javier Bianchi

American Economic Review, 2016, vol. 106, issue 12, 3607-59

Abstract: We develop a quantitative equilibrium model of financial crises to assess the interaction between ex post interventions in credit markets and the buildup of risk ex ante. During a systemic crisis, bailouts relax balance sheet constraints and mitigate the severity of the recession. Ex ante, the anticipation of such bailouts leads to an increase in risk-taking, making the economy more vulnerable to a financial crisis. We find that moral hazard effects are limited if bailouts are systemic and broad-based. If bailouts are idiosyncratic and targeted, however, this makes the economy significantly more exposed to financial crises.

JEL-codes: E23 E32 E44 E63 G01 G21 G28 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20121524
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Citations: View citations in EconPapers (75)

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Related works:
Working Paper: Efficient Bailouts? (2016)
Working Paper: Efficient bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
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