Banking Panic Risk and Macroeconomic Uncertainty
Jakob Mikkelsen and
Johannes Poeschl ()
MPRA Paper from University Library of Munich, Germany
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
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94729
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