IDEAS home Printed from https://ideas.repec.org/p/red/sed012/1026.html
   My bibliography  Save this paper

Confusion as Commitment

Author

Listed:
  • Guillermo Ordonez

    (Yale University)

  • Jaromir Nosal

    (Columbia University)

Abstract

In this paper, we argue that government confusion about the nature of the shock to the economy when observing banks in distress has the potential to relax the time inconsistency of policymakers and the ensuing collective moral hazard that leads to endogenous systemic events. Government confusion lowers the expected benefit from intervention and may lead to a delay, for the purpose of learning more about the nature of the shock. This hinders strategic coordination and leads to what we call strategic restraint, as banks endogenously restrict the riskiness of their portfolio in relative to their peers in order to avoid being the worst performers. From the perspective of these novel forces, we analyze the optimality of government intervention and regulation.

Suggested Citation

  • Guillermo Ordonez & Jaromir Nosal, 2012. "Confusion as Commitment," 2012 Meeting Papers 1026, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:1026
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2012/paper_1026.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    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:red:sed012:1026. 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: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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.