Investment Portfolio under Soft Budget: Implications for Growth, Volatility and Savings
Consider an economy with a high risk and high return and a low risk and low return asset and risk-averse agents making intertemporal consumption and 'investment decisions. The agent will choose a savings rate to balance cur-rent and future consumption, and an investment portfolio to balance between return and risk. A Government program to insure the high risk and high return asset will lead to increased investment in the asset which in turn leads to higher total return, total risk and total savings in the economy, even if ex ante the program constitutes zero expected subsidy. The agent is worse off under such a program. These results reflect on the experiences of a number of Asian economies featured by interventionist government, hi savings, high growth and recent financial crisis.
|Date of creation:||01 Jun 1998|
|Contact details of provider:|| Postal: 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109|
Phone: 734 763-5020
Fax: 734 763-5850
Web page: http://www.wdi.umich.edu
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1998-183. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WDI)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.