Efficient Bailouts?

Javier Bianchi

No 2012, Documentos de Trabajo (working papers) from Department of Economics - dECON

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 relax balance sheet constraints and mitigate the severity of the recession. Ex ante, the anticipation of such bailouts leads to an increase in risk-taking, making the economy more vulnerable to a financial crisis. The optimal policy requires, in general, a mix of expost intervention and ex-ante prudential policy. We also analyze the effects of bailouts on financial stability and welfare in the absence of ex-ante prudential policy. Our results show that the moral hazard effects of bailouts are significantly mitigated by making bailouts contingent on the occurrence of a systemic financial crisis.

Keywords: Bailouts; moral hazard; credit crunch; financial shocks; macro-prudential policy (search for similar items in EconPapers)
JEL-codes: E32 E44 F40 G18 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://hdl.handle.net/20.500.12008/2245 (application/pdf)

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:ude:wpaper:2012

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