American Economic Review Vol. 106 No. 12 2016
Efficient Bailouts?
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.
- DOI
- 10.1257/aer.20121524
- Volume
- 106
- Issue
- 12
- Pages
- 3607-3659
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref