Anticipated Banking Panics
American Economic Review
vol. 106,
no. 5, May 2016
(pp. 554-59)
Abstract
We develop a macroeconomic model with banking instability. Sunspot runs can arise that are harmful to the economy. However, whether a run equilibrium exists depends on fundamentals. In contrast to earlier work, the probability of a sunspot run is the outcome of rational forecast based on fundamentals. The model captures the movement from slow to fast runs that was a feature of the Great Recession: A weakening of banks' balance sheets increases the probability of a run, leading depositors to withdraw funds from banks. These slow runs have harmful effects on the economy and set the stage for fast runs.Citation
Gertler, Mark, Nobuhiro Kiyotaki, and Andrea Prestipino. 2016. "Anticipated Banking Panics." American Economic Review, 106 (5): 554-59. DOI: 10.1257/aer.p20161089Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation