Monday, December 21, 2009

Take-Home Final Exam Question

Suppose you have these finding from Reinhart and Rogoff (AER: 2009) showing that a banking crisis on average causes:

a. Unemployment to rise for 4.8 years, with an increase in the unemployment rate of about 7 percentage point.
b. Real GDP to decline for 1.9 years, with a decline in real GDP of about 9.3 percent.
c. Cumulative public debt to rise 186.3 percent in the three years following the crisis.


a. What is the probability (P) you are willing to assign that not bailing-out Bank Century will not lead to a banking crisis?
b. Multiply P with either a, b, or, c finding above-mentioned. Do you still let Bank Century collapse? Of course you can put the cost of moral-hazard into your equation.


Submit your answer to those Indonesian lawmakers in that special committee before they get confused.


  1. Life as we know it, on the one hand... moral hazard, on the other.

    Those who worry about moral hazard now -- where were they 20, 30, 40 years ago? Why didn't they step forward then, when there were still options?

  2. This is fascinating.
    I’d been taught that left-aligned labels are preferred, to support the prototypical F-shaped eye-tracking heatmap of web browsing. The idea is that it supports easy vertical scanning.

    study abroad