Modeling the Great Recession as a Bank Panic: Challenges

Lawrence Christiano, Husnu Dalgic and Xiaoming Li

No 29955, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We highlight two challenges for the notion that a pure panic bank run played an important role in the dynamics in the Great Recession. First, the conclusion depends critically on ruling out any entry of new net worth into a sector experiencing a run. When interpreted as reflecting a cost of entry into banking, the resulting costs seem implausibly large across a range of models. Second, we show that the qualitative features of run equilibria (their existence, how many there are, etc.) are highly sensitive to minor technical changes in assumptions about banker entry. We report another result that is of independent interest. In particular, we describe implementation problems associated with standard macroprudential policy tools for reducing the risk of bank panic.

JEL-codes: G01 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-ban and nep-fdg
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Published as Lawrence Christiano & Husnu Dalgic & Xiaoming Li, 2022. "Modelling the Great Recession as a Bank Panic: Challenges," Economica, London School of Economics and Political Science, vol. 89(S1), pages 200-238, June.

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Related works:
Journal Article: Modelling the Great Recession as a Bank Panic: Challenges (2022)
Working Paper: Modeling Bank Panics: Challenges (2022)
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