NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Miguel Faria-e-Castro

Federal Reserve Bank of St. Louis
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St. Louis, MO 63102
Tel: (314) 444-3911
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Institutional Affiliation: Federal Reserve Bank of St. Louis

NBER Working Papers and Publications

May 2015Runs versus Lemons: Information Disclosure and Fiscal Capacity
with Joseba Martinez, Thomas Philippon: w21201
We study the optimal use of disclosure and fiscal backstops during financial crises. Providing information can reduce adverse selection in credit markets, but negative disclosures can also trigger inefficient bank runs. In our model governments are thus forced to choose between runs and lemons. A fiscal backstop mitigates the risk of runs and allows a government to pursue a high disclosure strategy. Our model explains why governments with strong fiscal positions are more likely to run informative stress tests, and, paradoxically, how they can end up spending less than governments that are more fiscally constrained.

Published: Miguel Faria-e-Castro & Joseba Martinez & Thomas Philippon, 2017. "Runs versus Lemons: Information Disclosure and Fiscal Capacity," Review of Economic Studies, Oxford University Press, vol. 84(4), pages 1683-1707. citation courtesy of

 
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