Chilean study identifies ‘delicate’ relationship between prudential policy and bailouts
Central bank of Chile paper analyses effect of policy choices on bailouts
The interaction between prudential policies and bailouts is "delicate", according to a working paper published today by the Central Bank of Chile, which is wary of policy-makers' actions backfiring by worsening the "commitment problem" associated with bailouts.
In Bailouts and prudential policies – a delicate interaction, Ernesto Pastén analyses the effects of prudential policies "on the various components of the ex post incentives of an authority" to implement a bailout during a crisis.
"Liquid
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