Investor Moral Hazard and ECB Monetary Policy Response
90 Pages Posted: 14 Aug 2017
Date Written: August 5, 2015
This paper develops a model of ECB bailout response to the European sovereign debt markets. The model shows that the ECBs’ approach to bailouts helped prevent investor moral hazard by helping to add a distortion. This research seeks to answer the question: Was the ECB able to abate the Moral Hazard when performing a bailout. This research finds that the ECB, through the use of a voting mechanism, was generally able to abate the moral hazard when performing the bailout during the 2007 European Sovereign Debt Crisis.
Keywords: Currency Union, Monetary Policy, ECB, Bailout, Moral Hazzard, Sovereign Debt
JEL Classification: E52, E58, F45
Suggested Citation: Suggested Citation