scholarly journals A Macroeconomic Model with Financial Panics

2019 ◽  
Vol 87 (1) ◽  
pp. 240-288 ◽  
Author(s):  
Mark Gertler ◽  
Nobuhiro Kiyotaki ◽  
Andrea Prestipino
Keyword(s):  
Financial Crisis ◽  
Macroeconomic Model ◽  
Real Activity ◽  
Banking Panics ◽  
Discrete Nature ◽  
Banks And Banking ◽  
Credit Boom

Abstract This article incorporates banks and banking panics within a conventional macroeconomic framework to analyse the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of banking panics as well as the circumstances that make an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity both qualitatively and quantitatively. In addition to modelling the financial collapse, we also introduce a belief driven credit boom that increases the susceptibility of the economy to a disruptive banking panic.

Banking Panics as Endogenous Disasters and the Welfare Gains from Macroprudential Policy

2020 ◽  
Vol 110 ◽  
pp. 463-469
Author(s):  
Mark Gertler ◽  
Nobuhiro Kiyotaki ◽  
Andrea Prestipino
Keyword(s):  
Financial Crises ◽  
Welfare Effects ◽  
Macroeconomic Model ◽  
Statistical Relationship ◽  
Macroprudential Policy ◽  
Welfare Gains ◽  
Credit Booms ◽  
Ex Post ◽  
Banking Panics ◽  
Credit Boom

We study the welfare effects of macroprudential policy in a macroeconomic model of banking instability. Banking panics are endogenous economic disasters caused by banks' excessive leverage during credit booms. The model matches the frequency and severity of banking panics and the statistical relationship between panics and credit booms. A simple countercyclical macroprudential rule can achieve non-negligible welfare gains. These gains rise substantially when the run probability increases during a credit boom and, ex post, if a run is actually avoided. In a model without panics in which financial crises are driven by fundamentals only, the gains are much more limited.

scholarly journals Fiscal Policy in a Financial Crisis: Standard Policy versus Bank Rescue Measures

2012 ◽  
Vol 102 (3) ◽  
pp. 77-81 ◽  
Author(s):  
Robert Kollmann ◽  
Werner Roeger ◽  
Jan in't Veld
Keyword(s):  
Fiscal Policy ◽  
Financial Crisis ◽  
Banking Sector ◽  
Banking System ◽  
State Aid ◽  
Government Support ◽  
Real Activity ◽  
Government Purchases ◽  
Macroeconomic Effects ◽  
Positive Effect

A key dimension of fiscal policy during the financial crisis was massive government support for the banking system. The macroeconomic effects of that support have, so far, received little attention in the literature. This paper fills this gap, using a quantitative dynamic model with a banking sector. Our results suggest that state aid for banks may have a strong positive effect on real activity. Bank state aid multipliers are in the same range as conventional fiscal spending multipliers. Support for banks has a positive effect on investment, while a rise in government purchases crowds out investment.

scholarly journals Anticipated Banking Panics

2016 ◽  
Vol 106 (5) ◽  
pp. 554-559 ◽  
Author(s):  
Mark Gertler ◽  
Nobuhiro Kiyotaki ◽  
Andrea Prestipino
Keyword(s):  
Great Recession ◽  
Macroeconomic Model ◽  
Balance Sheets ◽  
The Great Recession ◽  
Banking Panics ◽  
Harmful Effects

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.

scholarly journals Reluctant Europeans? British and French Commercial Banks and the Common Market in Banking (1977–1992)

2020 ◽  
Vol 21 (3) ◽  
pp. 768-798 ◽  
Author(s):  
ALEXIS DRACH
Keyword(s):  
Financial Crisis ◽  
Commercial Banks ◽  
Banking Sector ◽  
Financial Integration ◽  
Common Market ◽  
European Banking ◽  
The Common ◽  
Banks And Banking ◽  
European Financial Integration

More than ten years after the financial crisis, the challenges of European banking and of the eurozone highlight that the existence of a European common market in banking is at best partial. Examining how British and French commercial banks and banking associations responded to the plans for a European common market in banking between 1977 and 1992, this article contributes to explaining this partial character, and highlights that this project was primarily political. This challenges the widely held view that large companies tended to push for more integration. This article shows that until the mid-1980s, the banking sector was not necessarily calling for European financial integration in the form of a common market in banking for at least three reasons: they doubted the usefulness of such a move, they feared an increase in regulation, and they focused more on domestic or global matters than on European ones.

Fragile by Design

2016 ◽  
Vol 5 (1) ◽  
pp. 48-52
Author(s):  
Po-Keng Cheng
Keyword(s):  
Financial Crisis ◽  
Significant Influence ◽  
Credit Rating ◽  
Banking System ◽  
Credit Boom

This paper provides review for which demonstrates the links between politics and banking. In addition to the perspective in , several recent studies relating to financial crisis are also introduced here. Issues about illiquidity, insolvency, credit boom, accuracy of credit rating, and neglected risk are discussed. Banking system is the bridge connecting households and sectors in the economy, where the design of the banking system has significant influence on the developments of countries.

A Fresh Start

2019 ◽  
pp. 171-175
Author(s):  
Hyun Song Shin
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Stability ◽  
Real Activity ◽  
Fresh Start

Monetary policy that aims only at real variables may neglect important financial stability considerations. A joined-up approach that takes together real activity and financial stability considerations will need to be employed in order not to repeat the experience of the Great Financial Crisis.

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