Anticipated Banking Panics

Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino

American Economic Review, 2016, vol. 106, issue 5, 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.

JEL-codes: E32 E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.p20161089
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Citations: View citations in EconPapers (8)

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