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Financial crises, bank risk exposure and government financial policy

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  • Gertler, Mark
  • Kiyotaki, Nobuhiro
  • Queralto, Albert

Abstract

A macroeconomic model with financial intermediation is developed in which the intermediaries (banks) can issue outside equity as well as short term debt. This makes bank risk exposure an endogenous choice. The goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk, but can also account for why banks adopt such a risky balance sheet in the first place. We use the model to assess quantitatively how perceptions of fundamental risk and of government credit policy in a crisis affect the vulnerability of the financial system ex ante. We also study the effects of macro-prudential policies designed to offset the incentives for risk-taking.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 59 (2012)
Issue (Month): S ()
Pages: S17-S34

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Handle: RePEc:eee:moneco:v:59:y:2012:i:s:p:s17-s34

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Web page: http://www.elsevier.com/locate/inca/505566

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Citations

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Cited by:
  1. de Groot, Oliver, 2013. "Computing the risky steady state of DSGE models," Economics Letters, Elsevier, vol. 120(3), pages 566-569.
  2. Kirchner, Markus & van Wijnbergen, Sweder, 2012. "Fiscal deficits, financial fragility, and the effectiveness of government policies," Discussion Papers 20/2012, Deutsche Bundesbank, Research Centre.
  3. Lawrence Christiano & Daisuke Ikeda, 2013. "Leverage Restrictions in a Business Cycle Model," NBER Working Papers 18688, National Bureau of Economic Research, Inc.
  4. V.V. Chari & Patrick J. Kehoe, 2013. "Bailouts, Time Inconsistency, and Optimal Regulation," NBER Working Papers 19192, National Bureau of Economic Research, Inc.
  5. repec:dgr:uvatin:2012044 is not listed on IDEAS
  6. Jess Benhabib & Pengfei Wang, 2012. "Financial Constraints, Endogenous Markups, and Self-fulfilling Equilibria," NBER Working Papers 18074, National Bureau of Economic Research, Inc.
  7. Scott J. Dressler & Erasmus Kersting, 2013. "Excess Reserves and Economic Activity," Villanova School of Business Department of Economics and Statistics Working Paper Series 24, Villanova School of Business Department of Economics and Statistics.
  8. DeGroot, Oliver, 2014. "The Risk Channel of Monetary Policy," Finance and Economics Discussion Series 2014-31, Board of Governors of the Federal Reserve System (U.S.).
  9. Mahir Binici & Hasan Erol & A. Hakan Kara & Pinar Ozlu & Deren Unalmis, 2013. "Interest Rate Corridor : A New Macroprudential Tool?," CBT Research Notes in Economics 1320, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  10. Villa, Stefania, 2013. "Financial frictions in the euro area: a Bayesian assessment," Working Paper Series 1521, European Central Bank.
  11. Mark Gertler & Nobuhiro Kiyotaki, 2013. "Banking, Liquidity and Bank Runs in an Infinite Horizon Economy," 2013 Meeting Papers 59, Society for Economic Dynamics.
  12. Tommaso Trani, 2012. "Countercyclical Capital Regulation and Bank Ownership Structure," IHEID Working Papers 14-2012, Economics Section, The Graduate Institute of International Studies.
  13. Albert Queralto & Ozge Akinci, 2013. "Financial Intermediation, Sudden Stops and Financial Crises," 2013 Meeting Papers 1332, Society for Economic Dynamics.
  14. Queraltó, Albert, 2013. "A Model of Slow Recoveries from Financial Crises," International Finance Discussion Papers 1097, Board of Governors of the Federal Reserve System (U.S.).

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