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Banking Panic Risk and Macroeconomic Uncertainty

Jakob Mikkelsen and Johannes Poeschl ()

MPRA Paper from University Library of Munich, Germany

Abstract: We show that systemic risk in the banking sector breeds macroeconomic uncertainty. In a production economy with a banking sector, financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases uncertainty in the aggregate economy. We explore the implications of this banking panic-driven uncertainty for business cycles, asset prices and macroprudential regulation. Banking panic-driven uncertainty amplifies business cycle volatility, increases risk premia on asset prices and yields a new benefit from countercyclical bank capital buffers.

Keywords: Banking Panics; Systemic Risk; Endogenous Uncertainty; Macroprudential Policy (search for similar items in EconPapers)
JEL-codes: E44 G12 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-rmg
Date: 2019-06-27
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94729

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