ON THE THREAT OF THE BANKING CRISIS, THE NEW WAVE OF ZOMBIFCATION OF THE ECONOMY AND THE OLIVERA-TANZI EFFECT
Abstract
The COVID-19 pandemic, as well as Russia‘s war in Ukraine and Western economic sanctions against Russia, have fueled high inflation. In order to reduce that high inflation, the US Federal Reserve raised bank interest rates, which caused some banks in the US to go bankrupt. At the same time, it is widely believed that due to the high inflation, zombie companies and zombie banks will cease to exist. The article shows that there are two types of zombie economy – orthodox and heterodox. The first type is based on government guarantees, while the second is based on government subsidies or/and low interest rates on bank loans. It is substantiated that due to the Olivera-Tanzi Effect, high inflation is not a threat to the existence of an orthodox zombie economy, although it does create difficulties for the existence of a heterodox zombie economy. The obligations taken by the US leadership to avoid a banking crisis may also provoke the process of zombification of those banks against which government measures will be used to ensure their solvency.
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