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Banking, Liquidity, and Bank Runs in an Infinite Horizon Economy

Mark Gertler () and Nobuhiro Kiyotaki

American Economic Review, 2015, vol. 105, issue 7, 2011-43

Abstract: We develop an infinite horizon macroeconomic model of banking that allows for liquidity mismatch and bank runs. Whether a bank run equilibrium exists depends on bank balance sheets and an endogenous liquidation price for bank assets. While in normal times a bank run equilibrium may not exist, the possibility can arise in recessions. A run leads to a significant contraction in intermediation and aggregate economic activity. Anticipations of a run have harmful effects on the economy even if the run does not occur. We illustrate how the model can shed light on some key aspects of the recent financial crisis. (JEL E23, E32, E44, G01, G21, G33)

JEL-codes: E23 E32 E44 G01 G21 G33 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20130665
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Related works:
Working Paper: Banking, Liquidity and Bank Runs in an Infinite Horizon Economy (2014) Downloads
Working Paper: Banking, Liquidity and Bank Runs in an Infinite-Horizon Economy (2013) Downloads
Working Paper: Banking, Liquidity and Bank Runs in an Infinite Horizon Economy (2013) Downloads
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