A Dynamic Quantitative Macroeconomic Model of Bank Runs

Ettore Panetti and Elena Mattana

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: We study the macroeconomic effects of bank runs in a neoclassical growth model with a fully microfounded banking system. In every period, the banks provide insurance against idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In the quantitative exercise, we find that the banks, for low values of the probability of the sunspot, choose a contract that is not run-proof, and satisfy an “equal service constraint” if the run is realized. In equilibrium, a shock to the probability of a bank run leads to a drop in GDP of between 0.001 and 5.6 percentage points.

JEL-codes: E21 E44 G01 G20 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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Working Paper: A dynamic quantitative macroeconomic model of bank runs (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w201413

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