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We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy by ameliorating the under-investment problem of the financial sector. However, increasing taxation of the non-financial sector to fund the bailout may be inefficient since it...
Persistent link: https://www.econbiz.de/10013123694
There has emerged in the Western economies a strong nexus between the credit risks of financial sectors and their sovereigns. We argue that this phenomenon can be understood in the context of two debt overhang problems: one affecting the financial sector due to its under-capitalization following...
Persistent link: https://www.econbiz.de/10013107212
We model a loop between sovereign and bank credit risk. A distressed financial sector induces government bailouts, whose cost leads to increased sovereign credit risk. Increased sovereign credit risk in turn weakens the financial sector by eroding the value of its government debt guarantees and...
Persistent link: https://www.econbiz.de/10013090988
We model a loop between sovereign and bank credit risk. A distressed financial sector induces government bailouts, whose cost leads to increased sovereign credit risk. Increased sovereign credit risk in turn weakens the financial sector by eroding the value of its government debt guarantees and...
Persistent link: https://www.econbiz.de/10013037894
We show that nancial sector bailouts and sovereign credit risk are intimately linked. A bailout benets the economy by ameliorating the under-investment problem of the nancial sector. However, increasing taxation of the non-nancial sector to fund the bailout may be inecient since it weakens its...
Persistent link: https://www.econbiz.de/10013080020
We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy by ameliorating the under-investment problem of the financial sector. However, increasing taxation of the non- financial sector to fund the bailout may be inefficient since it...
Persistent link: https://www.econbiz.de/10010908234
We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy by ameliorating the under-investment problem of the financial sector. However, increasing taxation of the non-financial sector to fund the bailout may be inefficient since it...
Persistent link: https://www.econbiz.de/10009365002