Premium
Bailouts, Endogenous Financial Regimes, and Market Sentiments
Author(s) -
Long Ngo Van,
Tian Huilan
Publication year - 2002
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00312
Subject(s) - financial intermediary , economics , shock (circulatory) , financial market , intermediary , investment (military) , indirect finance , monetary economics , finance , medicine , politics , political science , law
The authors examine the role of strategic interactions among a small number of financial intermediaries who know that the current financial regime is subject to change. The current financial regime offers protection to the intermediaries against bad outcomes. Each financial intermediary’s investment strategy is shown to depend on its rivals’ strategies. It is shown that a small shock that causes an initially small deviation from an intermediary’s equilibrium strategy can lead to a series of larger deviations by its rivals, thereby precipitating a change of financial regime.