We examine the welfare effects of bailouts in economies exposed to sovereign default risk. When a government of a small … that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when … document that welfare gains of bailouts are hump-shaped in the size of bailout loans. …

This paper introduces a theoretical liquidity risk model to explain how the fire-sale price happens by banks' portfolio … composition and the liquidity shocks. The model illustrates that the derivatives can serves as Arrow-Debreu securities for banks … to share and eliminate the liquidity risks. The shadow banking system serves as the external funds aids banks to absorb …