Bailout uncertainty in a microfounded general equilibrium model of the financial system

This paper develops a micro-founded general equilibrium model of the financial system composed of ultimate borrowers, ultimate lenders and financial intermediaries. The model is used to investigate the impact of uncertainty about the likelihood of governmental bailouts on leverage, interest rates, the volume of defaults and the real economy. The distinction between risk and uncertainty is implemented by applying the multiple priors framework to beliefs about the probability of bailout.

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Year of publication:	2015
Authors:	Cukierman, Alex ; Izhakian, Yehuda
Published in:	Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 52.2015, C, p. 160-179
Publisher:	Elsevier
Subject:	Risk \| Uncertainty \| Lehman’s default \| Leverage \| Financial intermediaries \| Bailouts \| Duration mismatches

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Type of publication:	Article
Classification:	G01 - Financial Crises ; G11 - Portfolio Choice ; G2 - Financial Institutions and Services ; G18 - Government Policy and Regulation ; E3 - Prices, Business Fluctuations, and Cycles ; E4 - Money and Interest Rates ; E5 - Monetary Policy, Central Banking and the Supply of Money and Credit ; E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; D83 - Search, Learning, Information and Knowledge
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011209863