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Bank Failures and Fiscal Austerity [electronic resource] : Policy Presecriptions for a Developing Country / Andrew Feltenstein.

By: Feltenstein, Andrew.
Material type: materialTypeLabelBookSeries: IMF Working Papers; Working Paper: No. 00/90Publisher: Washington, D.C. : International Monetary Fund, 2000Description: 1 online resource (30 p.).ISBN: 1451851383 :.ISSN: 1018-5941.Subject(s): Bank Assets | Bank Behavior | Bank Failures | Banking System | General Equilibrium | Monetary Policy | Bangladesh | Cameroon | Mexico | TurkeyAdditional physical formats: Print Version:: Bank Failures and Fiscal Austerity : Policy Presecriptions for a Developing CountryOnline resources: IMF e-Library | IMF Book Store Abstract: This work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies. The model is applied to stylized data from several South Asian countries. It derives conclusions about policy instruments designed to alleviate the impact of insolvencies. Firms are subject to intertemporal solvency conditions, and the public withdraws deposits when borrowers default. If banks optimize by restricting credit to risky borrowers, these failures can be partially avoided. Numerical simulations conclude that the combination of compensating monetary policy and restrictive fiscal policy offers the best way of responding to a bank crisis caused by exogenous shocks.
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This work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies. The model is applied to stylized data from several South Asian countries. It derives conclusions about policy instruments designed to alleviate the impact of insolvencies. Firms are subject to intertemporal solvency conditions, and the public withdraws deposits when borrowers default. If banks optimize by restricting credit to risky borrowers, these failures can be partially avoided. Numerical simulations conclude that the combination of compensating monetary policy and restrictive fiscal policy offers the best way of responding to a bank crisis caused by exogenous shocks.

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