Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses
In this paper, we study the impact of labor market restructuring and foreign direct investment on the banking sector, using a dynamic general equilibrium model with a financial sector. Numerical simulations are performed using stylized Chinese data, and banks failures are generated through increase...
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| Format: | Working paper |
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University of Oxford
2008
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| _version_ | 1826279548280373248 |
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| author | Feltenstein, A Rochon, C |
| author_facet | Feltenstein, A Rochon, C |
| author_sort | Feltenstein, A |
| collection | OXFORD |
| description | In this paper, we study the impact of labor market restructuring and foreign direct investment on the banking sector, using a dynamic general equilibrium model with a financial sector. Numerical simulations are performed using stylized Chinese data, and banks failures are generated through increases in the growth rate of the labor force, a revaluation of the exchange rate or an increase in debt issue to finance the government deficit, as compared to a benchmark scenario in which banks remain solvent. Thus bank failures can result from what might seem to be either beneficial economic trends, or correct monetary and fiscal policies. We introduce fiscal policies that modify relative factor prices by lowering the captial tax rate and increasing the tax rate on labor. Such policies can prevent banking failures by raising the return to capital. It is shown that such fiscal policies are, in the short run, welfare reducing. |
| first_indexed | 2024-03-07T00:00:23Z |
| format | Working paper |
| id | oxford-uuid:75ba6c32-f384-4ea1-bc9a-1b2bf19337f5 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T00:00:23Z |
| publishDate | 2008 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:75ba6c32-f384-4ea1-bc9a-1b2bf19337f52022-03-26T20:11:14ZCan good events lead to bad outcomes? Endogenous banking crises and fiscal policy responsesWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:75ba6c32-f384-4ea1-bc9a-1b2bf19337f5Bulk import via SwordSymplectic ElementsUniversity of Oxford2008Feltenstein, ARochon, CIn this paper, we study the impact of labor market restructuring and foreign direct investment on the banking sector, using a dynamic general equilibrium model with a financial sector. Numerical simulations are performed using stylized Chinese data, and banks failures are generated through increases in the growth rate of the labor force, a revaluation of the exchange rate or an increase in debt issue to finance the government deficit, as compared to a benchmark scenario in which banks remain solvent. Thus bank failures can result from what might seem to be either beneficial economic trends, or correct monetary and fiscal policies. We introduce fiscal policies that modify relative factor prices by lowering the captial tax rate and increasing the tax rate on labor. Such policies can prevent banking failures by raising the return to capital. It is shown that such fiscal policies are, in the short run, welfare reducing. |
| spellingShingle | Feltenstein, A Rochon, C Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses |
| title | Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses |
| title_full | Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses |
| title_fullStr | Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses |
| title_full_unstemmed | Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses |
| title_short | Can good events lead to bad outcomes? Endogenous banking crises and fiscal policy responses |
| title_sort | can good events lead to bad outcomes endogenous banking crises and fiscal policy responses |
| work_keys_str_mv | AT feltensteina cangoodeventsleadtobadoutcomesendogenousbankingcrisesandfiscalpolicyresponses AT rochonc cangoodeventsleadtobadoutcomesendogenousbankingcrisesandfiscalpolicyresponses |