To bail-out or to bail-in? Answers from an agent-based model
From MaRDI portal
Publication:1623970
DOI10.1016/J.JEDC.2014.08.020zbMATH Open1402.91955arXiv1403.1548OpenAlexW2080110320MaRDI QIDQ1623970FDOQ1623970
Authors: Peter Klimek, Sebastian Poledna, J. Doyne Farmer, Stefan Thurner 
Publication date: 15 November 2018
Published in: Journal of Economic Dynamics and Control (Search for Journal in Brave)
Abstract: Since beginning of the 2008 financial crisis almost half a trillion euros have been spent to financially assist EU member states in taxpayer-funded bail-outs. These crisis resolutions are often accompanied by austerity programs causing political and social friction on both domestic and international levels. The question of how to resolve failing financial institutions under which economic preconditions is therefore a pressing and controversial issue of vast political importance. In this work we employ an agent-based model to study the economic and financial ramifications of three highly relevant crisis resolution mechanisms. To establish the validity of the model we show that it reproduces a series of key stylized facts if the financial and real economy. The distressed institution can either be closed via a purchase & assumption transaction, it can be bailed-out using taxpayer money, or it may be bailed-in in a debt-to-equity conversion. We find that for an economy characterized by low unemployment and high productivity the optimal crisis resolution with respect to financial stability and economic productivity is to close the distressed institution. For economies in recession with high unemployment the bail-in tool provides the most efficient crisis resolution mechanism. Under no circumstances do taxpayer-funded bail-out schemes outperform bail-ins with private sector involvement.
Full work available at URL: https://arxiv.org/abs/1403.1548
Recommendations
Cites Work
- Bank Runs, Deposit Insurance, and Liquidity
- Network topology of the interbank market
- Default and Punishment in General Equilibrium1
- A model to analyse financial fragility
- A network analysis of the Italian overnight money market
- Equilibrium analysis, banking and financial instability.
- Macroeconomics from the bottom-up
- Leverage causes fat tails and clustered volatility
- Schumpeter meeting Keynes: a policy-friendly model of endogenous growth and business cycles
- Income distribution, credit and fiscal policies in an agent-based Keynesian model
- Elimination of systemic risk in financial networks by means of a systemic risk transaction tax
Cited In (12)
- The impacts of interest rates on banks' loan portfolio risk-taking
- Winter is possibly not coming: mitigating financial instability in an agent-based model with interbank market
- Quantifying the concerns of Dimon and Buffett with data and computation
- Introduction special issue crises and complexity
- Let the Worst One Fail: A Credible Solution to the Too-Big-To-Fail Conundrum
- Basel III capital surcharges for G-SIBs are far less effective in managing systemic risk in comparison to network-based, systemic risk-dependent financial transaction taxes
- Austerity, assistance and institutions: lessons from the Greek sovereign debt crisis
- The Fiscal Cost of Financial Instability
- CONTAGION IN HETEROGENEOUS FINANCIAL NETWORKS
- Resolution of financial crises
- Sovereign default contagion and monetary policy in an agent-based model
- Elimination of systemic risk in financial networks by means of a systemic risk transaction tax
This page was built for publication: To bail-out or to bail-in? Answers from an agent-based model
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q1623970)
