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Public funding of banks and firms in a time of crisis

Markus Haavio, Antti Ripatti and Tuomas Takalo

No 8/2022, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We study public funding of banks and non-financial firms in a time of crisis. We find that bank capitalization is more effective in stabilizing the economy than direct funding to firms, but it also creates larger distortions. We show that the optimal, social-welfare-maximizing, structure of a public funding program depends on its size. Small funding programs should target banks while large programs should be directed at non-financial firms.

Keywords: economic crises; optimal public funding; financial frictions; macro-financial linkages (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 G38 H12 H81 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cfn and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:82022

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