Efficient Bailouts?

Javier Bianchi

No 162, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops a non-linear DSGE model to assess the interaction between ex-post interventions in credit markets and the build-up of risk ex ante. During a systemic crisis, bailouts to the financial sector relax balance sheet constraints and accelerate the economic recovery. 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 the optimal intervention in the economy requires a bailout of around two percentage points of GDP during a credit crunch. We also show how bailouts may increase financial fragility in the absence of prudential policy.

Date: 2012
New Economics Papers: this item is included in nep-ban and nep-dge
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Efficient Bailouts? (2016)
Working Paper: Efficient Bailouts? (2016)
Working Paper: Efficient bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
Working Paper: Efficient Bailouts? (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:162

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