Booms and systemic banking crises
Frank Smets,
Fabrice Collard and
Frédéric Boissay
No 1514, Working Paper Series from European Central Bank
Abstract:
The empirical literature on systemic banking crises (SBCs) has shown that SBCs are rare events that break out in the midst of credit intensive booms and bring about particularly deep and long-lasting recessions. We attempt to explain these phenomena within a dynamic general equilibrium model featuring a non-trivial banking sector. In the model, banks are heterogeneous with respect to their intermediation skills, which gives rise to an interbank market. Moral hazard and asymmetric information on this market may generate sudden interbank market freezes, SBCs, credit crunches and, ultimately, severe recessions. Simulations of a calibrated version of the model indicate that typical SBCs break out in the midst of a credit boom generated by a sequence of positive supply shocks rather than being the outcome of a big negative wealth shock. We also show that the model can account for the relative severity of recessions with SBCs and their longer duration. JEL Classification: E32, E44, G01, G21
Keywords: asymmetric information; credit crunch; lending boom; moral hazard; systemic banking crisis (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta and nep-dge
Note: 58657
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (82)
Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1514.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20131514
Access Statistics for this paper
More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().