|
EconStor >
Federal Reserve Bank of New York >
Staff Reports, Federal Reserve Bank of New York >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/60889
|
| | |
| Title: | | Expectations versus fundamentals: Does the cause of banking panics matter for prudential policy?  |
| Authors: | | Keister, Todd Narasiman, Vijay |
| Issue Date: | | 2011 |
| Series/Report no.: | | Staff Report, Federal Reserve Bank of New York 519 |
| Abstract: | | There is a longstanding debate about whether banking panics and other financial crises always have fundamental causes or are sometimes the result of self-fulfilling beliefs. Disagreement on this point would seem to present a serious obstacle to designing policies that promote financial stability. However, we show that the appropriate choice of policy is invariant to the underlying cause of banking panics in some situations. In our model, the anticipation of being bailed out in the event of a crisis distorts the incentives of financial institutions and their investors. Two policies that aim to correct this distortion are compared: restricting policymakers from engaging in bailouts, and allowing bailouts but taxing the short-term liabilities of financial institutions. We find that the latter policy yields higher equilibrium welfare regardless of whether panics are sometimes caused by self-fulfilling beliefs. |
| Subjects: | | banking panics financial regulation bailouts |
| JEL: | | E61 G21 G28 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Staff Reports, Federal Reserve Bank of New York
|
| Files in This Item:
| |
|
| No. of Downloads:
| |
| last Month |
last 3 Month |
total |
|
|
|
|
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/60889
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|