A dynamic quantitative macroeconomic model of bank runs

Elena Mattana and Ettore Panetti

No 2014068, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We study the macroeconomic effects of systemic bank runs in a neoclassical model with a microfounded banking system. In every period, the banks provide insurance against some idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In a quantitative exercise, we find that the banks, when the probability of a run is sufficiently low, choose a contract that is not run-proof, and satisfy an equal service constraint. In equilibrium, a shock to the probability of a run leads to a maximum drop in GDP of 5.6 percent, and a maximum welfare loss of 0.17 percent.To what extent do income taxation systems decrease poverty? We raise this question under the assumption that well beings is defined in line with the ethics of responsibility. It requires considering that not all inequalities are unjust. Here, we do consider that inequalities stemming from labor time differences are not unjust. To compare households of different sizes, we introduce a labor time equivalence scale. We apply the resulting method to the Belgian tax system

Keywords: financial intermediation; bank runs; welfare costs; calibration (search for similar items in EconPapers)
JEL-codes: E21 E44 G01 G20 (search for similar items in EconPapers)
Date: 2014-09-30
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: A Dynamic Quantitative Macroeconomic Model of Bank Runs (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2014068

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