IDEAS home Printed from https://ideas.repec.org/a/eee/inecon/v151y2024ics0022199624000898.html
   My bibliography  Save this article

Financial crises, bailouts and monetary policy in open economies

Author

Listed:
  • Jiao, Yang

Abstract

I jointly study the optimal bailout policy and monetary policy in open economies that borrow in foreign currency from international lenders. A policy dilemma emerges during financial crises. Policymakers trade off the benefit of more bailouts alleviating firms’ financial constraints against the cost of larger currency devaluation, which tightens firms’ financial constraints. I embed the optimal bailout in an otherwise standard “sudden stop” model with nominal rigidities. The model sheds light on the role of bailouts and currency mismatch in driving the exchange rate dynamics, firms’ balance sheets and economic recovery. Quantitatively, the model matches key business cycle moments. A welfare evaluation shows that there are in general welfare gains from the systemic bailout policy despite ex ante moral hazard problems of firms.

Suggested Citation

  • Jiao, Yang, 2024. "Financial crises, bailouts and monetary policy in open economies," Journal of International Economics, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:inecon:v:151:y:2024:i:c:s0022199624000898
    DOI: 10.1016/j.jinteco.2024.103962
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022199624000898
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jinteco.2024.103962?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:151:y:2024:i:c:s0022199624000898. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505552 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.