Financial Safety Nets

Julien Bengui, Javier Bianchi and Louphou Coulibaly

No 22594, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we study the optimal design of financial safety nets under limited private credit. We ask when it is optimal to restrict ex ante the set of investors that can receive public liquidity support ex post. When the government can commit, the optimal safety net covers all investors. Introducing a wedge between identical investors is inefficient. Without commitment, an optimally designed financial safety net covers only a subset of investors. Compared to an economy where all investors are protected, this results in more liquid portfolios, better social insurance, and higher ex ante welfare. Our result can rationalize the prevalent limited coverage of safety nets, such as the lender of last resort facilities.

JEL-codes: E58 E61 G28 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-sog
Note: CF EFG IFM ME
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Citations: View citations in EconPapers (2)

Published as Julien Bengui & Javier Bianchi & Louphou Coulibaly, 2019. "FINANCIAL SAFETY NETS," International Economic Review, vol 60(1), pages 105-132.

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Related works:
Journal Article: FINANCIAL SAFETY NETS (2019)
Working Paper: Financial Safety Nets (2016)
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