The Diamond-Rajan Bank Runs in a Production Economy
AbstractTo analyze the macroeconomic consequences of a systemic bank run, we integrate the banking model `a la Diamond and Rajan (2001a) into a simplified version of an infinite-horizon neoclassical growth model. The banking sector intermediates the collateral-secured loans from households to entrepreneurs. The entrepreneurs also deposit their working capital in the banks. The systemic bank run, which is a sunspot phenomenon in this model, results in a deep recession through causing a sudden shortage of the working capital. We show that an increase in the probability of occurrence of the systemic run can persistently lower output, consumption, labor, capital and the asset price, even if the systemic run does not actually occur. This result implies that the slowdown of economic growth after the financial crises may be caused by the increased fragility of the banking system or the raised fears of recurrence of the systemic runs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series PIE/CIS Discussion Paper with number 515.
Length: 31 p.
Date of creation: Mar 2011
Date of revision:
Note: March 2011 (First draft: September 30, 2010)
Contact details of provider:
Postal: 2-1 Naka, Kunitachi City, Tokyo 186-8603
Web page: http://cis.ier.hit-u.ac.jp/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-24 (All new papers)
- NEP-BAN-2011-05-24 (Banking)
- NEP-CBA-2011-05-24 (Central Banking)
- NEP-DGE-2011-05-24 (Dynamic General Equilibrium)
- NEP-FDG-2011-05-24 (Financial Development & Growth)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- New York University & Saki Bigio, 2010. "Endogenous Liquidity and the Business Cycle," 2010 Meeting Papers 672, Society for Economic Dynamics.
- Keiichiro Kobayashi & Kengo Nutahara, 2007.
"Collateralized capital and news-driven cycles,"
AccessEcon, vol. 5(18), pages 1-9.
- repec:ebl:ecbull:v:5:y:2007:i:18:p:1-9 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Resources Section, Hitotsubashi University Library).
If references are entirely missing, you can add them using this form.