Arbeitspapier
Financial crisis resolution
This paper studies a dynamic version of the Holmstrom-Tirole model of intermediated finance. I show that competitive equilibria are not constrained efficient when the economy experiences a financial crisis. A pecuniary externality entails that banks' desire to accumulate capital over time aggravates the scarcity of informed capital during the financial crisis. I show that a constrained social planner finds it beneficial to introduce a permanent wedge between the deposit rate and the economy's marginal rate of transformation. The wedge improves borrowers' access to finance during a financial crisis by strengthening banks' incentives to provide intermediation services. I propose a simple implementation of the constrained-efficient allocation that limits bank size.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Working Paper ; No. 2012-42
- Classification
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Wirtschaft
Financial Crises
General Financial Markets: General (includes Measurement and Data)
General Equilibrium and Disequilibrium: Financial Markets
General Financial Markets: Government Policy and Regulation
Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
- Subject
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Financial system regulation and policies
Financial markets
- Event
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Geistige Schöpfung
- (who)
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Schroth, Josef
- Event
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Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
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2012
- DOI
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doi:10.34989/swp-2012-42
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Schroth, Josef
- Bank of Canada
Time of origin
- 2012
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