Aftermath of Banking Crises: Effectson Real and Monetary Variables

Gupta, Poonam

Aftermath of Banking Crises: Effectson Real and Monetary Variables

No 2000/096, IMF Working Papers from International Monetary Fund

Abstract: In this paper a simple optimizing model is developed to analyze the implications of a banking crisis. Banks are incorporated by assuming that they intermediate funds between firms and households. It is shown that when depositors perceive the quality of deposits to have deteriorated, they switch from deposits to cash. Because of the higher cost of liquidity, consumption, M2 and the M2 multiplier decline, interest rates on deposits and loans increase and output contracts. The findings of the paper match the key stylized facts of banking crises.

Keywords: WP; current account; economic activity; opportunity cost; present discounted value; Banking Crisis; substitution effect; open economy; cash reserves; liquidity of deposit; deposits withdrawal; lending-to-deposit interest rate; money multiplier; bank credit line; effective demand; deposit guarantee; Consumption; Currencies; Banking crises; Bank credit; Credit; East Asia (search for similar items in EconPapers)
Pages: 25
Date: 2000-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Aftermath of banking crises: Effects on real and monetary variables (2005)
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