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Credit Booms, Financial Crises and Macroprudential Policy

Mark Gertler (), Nobuhiro Kiyotaki and Andrea Prestipino

No 27481, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of banking crises 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 a crisis. That is, there are "good" booms as well as "bad" 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 macropudential policy.

JEL-codes: E00 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
Note: CF EFG ME
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Published as Mark Gertler & Nobuhiro Kiyotaki & Andrea Prestipino, 2020. "Credit booms, financial crises, and macroprudential policy," Review of Economic Dynamics, vol 37, pages S8-S33.

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