A Framework for the Analysis of Financial Reforms and the Cost of Official Safety Nets

70 Pages Posted: 15 Feb 2006

See all articles by Peter Isard

Peter Isard

International Monetary Fund (IMF) - Research Department

Donald J. Mathieson

International Monetary Fund (IMF)

Liliana Rojas-Suarez

Center for Global Development

Date Written: May 1992

Abstract

This paper builds a multiperiod, general equilibrium framework for analyzing the macroeconomic effects of financial reforms in developing countries and the costs of maintaining official safety nets under the financial system during such reforms. While a financial liberalization yields efficiency gains adverse macroeconomic effects can arise if the creditworthiness of the nonfinancial sector is weak. In this situation financial liberalization may also increase the authorities` expected deposit insurance funding obligations even with strong prudential supervision. Moreover given the distortions in a repressed financial system an increase in the required bank capital-asset ratio may increase the funding obligations associated with deposit insurance particularly when the debt-servicing capacity of nonfinancial firms is low.

JEL Classification: E44, G21, O16

Suggested Citation

Isard, Peter and Mathieson, Donald J. and Rojas-Suarez, Liliana, A Framework for the Analysis of Financial Reforms and the Cost of Official Safety Nets (May 1992). IMF Working Paper No. 92/31, Available at SSRN: https://ssrn.com/abstract=884709

Peter Isard (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Donald J. Mathieson

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Liliana Rojas-Suarez

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

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