Credit Booms, Financial Crises, and Macroprudential Policy

Mark Gertler, Nobuhiro Kiyotaki and Andrea Prestipino
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Nobuhiro Kiyotaki: Princeton University

Review of Economic Dynamics, 2020, vol. 37 Supplement 1, S8-S33

Abstract: We develop a model of banking panics which is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in crises. That is, there are "bad booms" as well as "good booms" in the language of Gorton and Ordonez (2019). We then consider how the optimal macroprudential policy weighs the benefits of preventing a crisis against the costs of stopping a good boom. We show that countercyclical capital buffers are a critical feature of a successful macroprudential policy. (Copyright: Elsevier)

Keywords: Financial crises; Credit booms; Macroprudential policy; Bank runs; Countercyclical capital buffers (search for similar items in EconPapers)
JEL-codes: E23 E32 E44 G01 G21 G33 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (22)

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DOI: 10.1016/j.red.2020.06.004

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