Loading...
Please wait, while we are loading the content...
Similar Documents
Macroprudential regulation versus mopping up after the crash,”manuscript (2012).
| Content Provider | CiteSeerX |
|---|---|
| Author | Jeanne, Olivier Korinek, Anton |
| Abstract | This paper compares ex-ante policy measures (such as macroprudential restrictions on leverage) and ex-post policy interventions (such as bailouts) to respond to systemic risk, i.e. to the danger that an economy may experience financial feedback loops in which falling asset prices, declining net worth and tightening financial constraints reinforce each other. Ex-post policy measures are better targeted, since they are taken only once a crisis has materialized, but they aggravate the over-investment problem ex ante and introduce a time consistency problem. Ex-ante policy measures are more blunt, but they can both mitigate the pecuniary externalities that arise during crises and resolve the time consistency problem in ex-post policies. We find that except in limit cases, it is optimal to respond to systemic risk by using a mix of both ex-ante measures and ex-post interventions, and characterize the optimal policy mix. Furthermore, limiting bailouts to the revenue accumulated in a bailout fund reduces welfare. |
| File Format | |
| Publisher Date | 2012-01-01 |
| Access Restriction | Open |
| Subject Keyword | Macroprudential Regulation Versus Mopping Ex-ante Policy Measure Time Consistency Problem Optimal Policy Mix Ex-post Intervention Pecuniary Externality Ex-post Policy Financial Constraint Ex-post Policy Intervention Net Worth Financial Feedback Loop Asset Price Limit Case Over-investment Problem Ex Ante Ex-ante Measure Bailout Fund Ex-post Policy Measure Macroprudential Restriction |
| Content Type | Text |
| Resource Type | Article |
