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Financial Sector Rescue Programs: Domestic and Cross Border Effects
We assess the effectiveness of the financial sector stabilisation measures taken by the Austrian authorities in the wake of
the global financial crisis. Employing an event study methodology, we evaluate domestic and cross-border effects involving
Central, Eastern and South-eastern European economies. We identify recapitalisations and public guarantees as the most effective
sovereign interventions. Both mitigate financial market stress at home and abroad. However, a risk-shifting effect emerges
at the sovereign's expense which undermines their effectiveness relative to monetary policy interventions. Moreover, in complement
to the actual implementation, the mere announcement of interventions already mitigates financial market stress, underscoring
the extent of policy credibility.
JEL-Codes:E58, E65, G14, G18, G28
Keywords:Financial market stress, Spill-overs and financial contagion, Policy interventions, Interacted Bayesian VAR, Event study analysis
Forschungsbereich:Makroökonomie und öffentliche Finanzen
Sprache:Englisch