Title Balance-sheet shocks and recapitalizations / Damiano Sandri and Fabián Valencia

Published [Washington, D.C.] : International Monetary Fund, ©2012

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Description 1 online resource (26 pages) : illustrations Series IMF working paper ; WP/12/68 IMF working paper ; WP/12/68. Contents Cover; Contents; I: Introduction; II: The Model; A: Real Sector Firms; B: Financial sector; C: Equilibrium in the financial and real sectors; D: Household sector; III: Calibration; List of Figures; 1 Sequence of Events; List of Tables; 1 Steady State Values and Targets; IV: Responses to net worth shocks; A: Financial sector as amplifier; 2 Financial Variables; B: Financial sector as shock generator; 3 Shocks to real sector; 4 Impulse response functions from net worth shocks; V: Recapitalization policies; 5 Welfare gains from recapitalization and sources; VI: Uncertainty shocks 6 Welfare gains from recapitalization and size of the net worth shockA: Recapitalization Policies and Idiosyncratic Risk; 7 Impulse response functions from net worth shocks and idiosyncratic risk; VII: Conclusion; 8 Welfare gains from recapitalization and idiosyncratic risk; References Summary We develop a dynamic stochastic general equilibrium model with financial frictions on both financial intermediaries and goods-producing firms. In this context, due to high leverage of financial intermediaries, balance sheet disruptions in the financial sector are particularly detrimental for aggregate output. We show that the welfare gains from recapitalizing the financial sector in response to large but rare net worth losses are as large as those from eliminating business cycle fluctuations. We also find that these gains are increasing in the size of the net worth loss, are larger when recapitalization funds are raised from the household rather than the real sector, and may increase with a reduction in financial intermediaries idiosyncratic risk Notes At head of title: Research Department Title from PDF title page (IMF Web site, viewed March 6, 2012) "March 2012." Bibliography Includes bibliographical references Subject Financial crises -- Econometric models Bank failures -- Econometric models Crisis management -- Econometric models Intervention (Federal government) -- Econometric models Bank failures -- Econometric models Financial crises -- Econometric models Form Electronic book Author Valencia, Fabian, author. International Monetary Fund. Research Department, issuing body.

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