Trading for Bailouts
Toni Ahnert (),
Caio Machado () and
Ana Elisa Pereira ()
Staff Working Papers from Bank of Canada
Government interventions such as bailouts are often implemented in times of high uncertainty. Policymakers may therefore rely on information from financial markets to guide their decisions. We propose a model in which a policymaker learns from market activity and where market participants have high stakes in the intervention. We study how the strategic behavior of informed traders affects market informativeness, the probability and efficiency of bailouts, and stock prices. We apply the model to study the liquidity support of distressed banks and derive implications for market informativeness and policy design. Commitment to a minimum liquidity support can increase market informativeness and welfare.
Keywords: Financial institutions; Financial markets; Financial system regulation and policies; Lender of last resort (search for similar items in EconPapers)
JEL-codes: D83 G18 (search for similar items in EconPapers)
Pages: 54 pages
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2020/06/swp2020-23.pdf Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:20-23
Access Statistics for this paper
More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().