Banking, Liquidity and Bank Runs in an Infinite-Horizon Economy
AbstractWe develop a variation of the macroeconomic model with banking in Gertler and Kiyotaki (2011) that allows for liquidity mismatch and bank runs as in Diamond and Dybvig (1983). As in Gertler and Kiyotaki, because bank net worth fluctuates with aggregate production, the spread between the expected rates of return on bank assets and deposits fluctuates counter-cyclically. However, because bank assets are less liquid than deposits, bank runs are possible as in Diamond and Dybvig. Whether a bank run equilibrium exists depends on bank balance sheets and an endogenously determined liquidation price for bank assets. While in normal times a bank run equilibrium may not exist, the possibility can arise in a recession. We also analyze the effects of anticipated bank runs. Overall, the goal is to present a framework that synthesizes the macroeconomic and microeconomic approaches to banking and banking instability.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19129.
Date of creation: Jun 2013
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Other versions of this item:
- Mark Gertler & Nobuhiro Kiyotaki, 2013. "Banking, Liquidity and Bank Runs in an Infinite Horizon Economy," 2013 Meeting Papers 59, Society for Economic Dynamics.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-24 (All new papers)
- NEP-BAN-2013-06-24 (Banking)
- NEP-DGE-2013-06-24 (Dynamic General Equilibrium)
- NEP-MAC-2013-06-24 (Macroeconomics)
- NEP-MIC-2013-06-24 (Microeconomics)
- NEP-MON-2013-06-24 (Monetary Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Banking, Liquidity and Bank Runs in an Infinite Horizon Economy
by Christian Zimmermann in NEP-DGE blog on 2013-08-24 15:50:35
- Anil K Kashyap & Dimitrios P. Tsomocos & Alexandros P. Vardoulakis, 2014. "How does macroprudential regulation change bank credit supply?," NBER Working Papers 20165, National Bureau of Economic Research, Inc.
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