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Booms and banking crises

Author

Listed:
  • Frederic Boissay
  • Fabrice Collard
  • Frank Smets

Abstract

Banking crises are rare events that break out in the midst of credit intensive booms and bring about particularly deep and long-lasting recessions. This paper attempts to explain these phenomena within a textbook DSGE model that features a non-trivial banking sector. In the model, banks are heterogeneous with respect to their intermediation skills, which gives rise to an interbank market. Moral hazard and asymmetric information in this market may lead to sudden interbank market freezes, banking crises, credit crunches and severe recessions. Those "financial" recessions follow credit booms and are not triggered by large exogenous adverse shocks.

Suggested Citation

  • Frederic Boissay & Fabrice Collard & Frank Smets, 2016. "Booms and banking crises," BIS Working Papers 545, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:545
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
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    3. Vincenzo Quadrini & Fabrizio Perri, 2010. "International recessions," 2010 Meeting Papers 222, Society for Economic Dynamics.
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    6. Boissay, Frédéric, 2011. "Financial imbalances and financial fragility," Working Paper Series 1317, European Central Bank.
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    8. Mark Gertler & Nobuhiro Kiyotaki, 2015. "Banking, Liquidity, and Bank Runs in an Infinite Horizon Economy," American Economic Review, American Economic Association, vol. 105(7), pages 2011-2043, July.
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    13. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
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    15. Smets, Frank & Collard, Fabrice & Boissay, Frédéric, 2013. "Booms and systemic banking crises," Working Paper Series 1514, European Central Bank.
    16. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
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    More about this item

    Keywords

    moral hazard; asymmetric information; saving glut; lending boom; credit crunch; banking crisis;

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