Fiscal reform, bank solvency, and the law of unintended consequences: A CGE analysis of Mexico

Arne Kildegaard

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Whether due to random economic shocks or deliberate policy measures, sudden relative price changes can lower bank solvency. Whereas "winners" - i.e., those sectors experiencing improved net prices for their output - aren't obliged to share their good fortune with banks, "losers" my share their bad fortune by electing to default on bank loans. This paper presents a disaggregated dynamic computable general equilibrium model, used to analyze specifically how current policy proposals to stimulate savings might affect solvency in different sectors. We find surprising capital losses in pesos for two of the three policies simulated, which would leave domestic currency debtors substantially worse off.

Original languageEnglish (US)
Pages (from-to)55-77
Number of pages23
JournalNorth American Journal of Economics and Finance
Volume12
Issue number1
DOIs
StatePublished - Mar 1 2001
Externally publishedYes

Keywords

  • Banks
  • CGE modeling
  • Financial crisis
  • Saving

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