American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Efficient Bailouts?
American Economic Review
vol. 106,
no. 12, December 2016
(pp. 3607–59)
Abstract
We develop a quantitative equilibrium model of financial crises to assess the interaction between ex post interventions in credit markets and the buildup 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. We find that moral hazard effects are limited if bailouts are systemic and broad-based. If bailouts are idiosyncratic and targeted, however, this makes the economy significantly more exposed to financial crises.Citation
Bianchi, Javier. 2016. "Efficient Bailouts?" American Economic Review, 106 (12): 3607–59. DOI: 10.1257/aer.20121524Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E63 Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation