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Relevance of the collateral constraint form in the analysis of financial crisis interventions

Carmina Vargas () and Julián Parra-Polanía ()

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We combine two modifications to the standard (current and total income) collateral constraint that has been commonly used in models that analyze financial crisis interventions. Specifically, we consider an alternative constraint stated in terms of future and disposable income. We find that in this case a state-contingent debt tax (effective during crisis only, as opposed to a macroprudential tax) increases debt capacity and lowers the probability of crisis. This shows one more instance to call the attention of academics and policymakers to the fact that the specific form of the borrowing constraint is crucial in determining the appropriate crisis intervention. **** RESUMEN: Combinamos dos modificaciones a la restricción crediticia estándar (i.e., en términos de los ingresos corrientes y totales) que se ha utilizado comúnmente en los modelos que analizan las intervenciones en crisis financieras. Específicamente, consideramos una restricción alternativa expresada en términos de ingresos futuros y disponibles. Encontramos que, en este caso, un impuesto a la deuda dependiente del estado de la economía (efectivo solo durante las crisis, a diferencia de un impuesto macroprudencial) aumenta la capacidad de endeudamiento y reduce la probabilidad de crisis. Este resultado representa un ejemplo más para llamar la atención de académicos y formuladores de políticas sobre el hecho de que la forma específica de la restricción de endeudamiento es crucial para determinar la intervención de crisis adecuada.

Keywords: Collateral constraint; financial crises; macroprudential tax; ex-post intervention; restricción crediticia; crisis financieras; impuesto macroprudencial; intervención ex post (search for similar items in EconPapers)
JEL-codes: E44 F34 F41 G01 H21 (search for similar items in EconPapers)
Pages: 9
Date: 2022-01
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
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https://doi.org/10.32468/be.1190

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