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Financial Safety Nets / Julien Bengui, Javier Bianchi, Louphou Coulibaly.
- Format:
- Book
- Author/Creator:
- Bengui, Julien.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w22594.
- NBER working paper series no. w22594
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2016.
- Summary:
- In this paper, we study the optimal design of financial safety nets under limited private credit. We ask when it is optimal to restrict ex ante the set of investors that can receive public liquidity support ex post. When the government can commit, the optimal safety net covers all investors. Introducing a wedge between identical investors is inefficient. Without commitment, an optimally designed financial safety net covers only a subset of investors. Compared to an economy where all investors are protected, this results in more liquid portfolios, better social insurance, and higher ex ante welfare. Our result can rationalize the prevalent limited coverage of safety nets, such as the lender of last resort facilities.
- Notes:
- Print version record
- September 2016.
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