Efficient Bailouts?

Javier Bianchi

No 730, Working Papers from Federal Reserve Bank of Minneapolis

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.

Keywords: Bailouts; Moral hazard; Credit crunch; Financial shocks; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: E32 E44 F40 G18 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2016-01-19
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://www.minneapolisfed.org/research/wp/wp730.pdf Full text (application/pdf)

Related works:
Journal Article: Efficient Bailouts? (2016)
Working Paper: Efficient bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:730

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Kate Hansel ().