Financial Crisis Essay

Financial Crisis Essay-78
Therefore, the government takes an alarmist stance, bailing out more frequently than it would without the long-term consideration.The third chapter analyzes how the government's strategic disclosure of its superior information on an aggregate uncertainty influences risk taking by a firm.

Therefore, the government takes an alarmist stance, bailing out more frequently than it would without the long-term consideration.

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Moreover, real estate pricing was severely affected by the crisis.

As a result most people were left unemployed while the lucky ones who retained their jobs experienced drastic fall in income.

Second, it signifies an increased likelihood of future bailout, which encourages risk taking.

When the prior probability of crisis is low, the latter effect dominates.

I analyze how these uncertainties as well as a government's desire to control future moral hazard influence a bailout decision.

Financial Crisis Essay Re Homework

To this end, I develop a two-period model in which the government privately receives a signal on the unknown state of the economy.

Hence, the government takes a tougher stance, bailing out less frequently than it would without the long-term consideration.

When the prior probability of crisis is high, the former effect dominates.

The government is often tempted to strategically disclose its superior knowledge to influence management of financial risk by a firm.

To capture this, I develop a static model in which the government with private information sends a cheap-talk message to the firm before assuming its risk taking.

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