Optimal Fiscal Policy and Government Provision of Contingent Liabilities: The Example of Government Loan and Deposit Guarantees

International Monetary Fund

No 1989/084, IMF Working Papers from International Monetary Fund

Abstract: The optimal provision of loan guarantees or deposit insurance is examined in the context of an overlapping generations model. It is demonstrated that even in the face of a market imperfection that precludes diversification of the private sector’s loan portfolio to eliminate risk, full government guarantee of private sector loans (or deposits) is suboptimal. The results of the paper suggest that although some degree of guarantee is appropriate, the design of such policies should be tempered to avoid an inefficient level of capital accumulation.

Keywords: WP; private sector; real rate of interest; loan guarantee; loan portfolio; aggregate loan demand; rate of return; loan rate; payoff to creditor; marginal utility; Loan guarantees; Loans; Consumption; Contingent liabilities; Sovereign bonds (search for similar items in EconPapers)
Pages: 28
Date: 1989-01-01
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=29104 (application/pdf)

Related works:
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:imf:imfwpa:1989/084

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().