Getting What You Want: Information and Crisis Management in Ireland and Korea
32 Pages Posted: 9 Nov 2012
Date Written: April 16, 2012
Abstract
Governments have a range of policy options for managing banking crises, but it can be difficult for them to determine and choose policies that will best further their aims. During banking crises, policymakers must rely on information from bureaucrats and actors in the financial system with different preferences. Moreover, initial crisis containment choices can constrain future resolution options. The 2008/09 banking crisis in Ireland and the following effective nationalization of the banking sector reminds us that it can be diffcult to actually choose policies that will successfully manage a crisis in a preferred direction. Our paper contrasts the Irish case with South Korea’s 1997 experience, where guarantee and ownership policy choices more closely matched decision-maker’s preferences. We build on Satyanath’s (2006) signaling approach to create a model of how decision-makers could be influenced to make nonpreferred choices. We examine the empirical plausibility of our model by comparing analytic narratives of Ireland’s and Korea’s crises. A key finding is Ireland, as a Eurozone member, did not need to rely on external actors giving more accurate information. Because of this, Irish decision-makers were unable to get what they wanted.
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