Banking, Liquidity and Bank Runs in an Infinite Horizon Economy
AbstractWe develop a variation of the macroeconomic model of banking in Gertler and Kiyotaki (2011) that allows for household liquidity risks and bank runs as in Diamond and Dybvig (1983). As in Gertler and Kiyotaki, because bank net worth fluctuates with aggregate production, the spread in the expected rates of return on bank asset and deposit fluctuates countercyclically. However, because bank assets have a longer maturity than deposits, bank runs are possible as in Diamond and Dybvig. Whether a bank run equilibrium exists depends on bank balance sheets and a liquidation price for bank assets in equilibrium. While in normal times a bank run equilibrium may not exist, the possibility can arise in a recession. 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 Society for Economic Dynamics in its series 2013 Meeting Papers with number 59.
Date of creation: 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," NBER Working Papers 19129, National Bureau of Economic Research, Inc.
- 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-2013-08-23 (All new papers)
- NEP-BAN-2013-08-23 (Banking)
- NEP-DGE-2013-08-23 (Dynamic General Equilibrium)
- NEP-MON-2013-08-23 (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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