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Banking Panic Risk and Macroeconomic Uncertainty

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  • Mikkelsen, Jakob
  • Poeschl, Johannes

Abstract

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. In a production economy with a banking sector, financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases uncertainty in the aggregate economy. We explore the implications of this banking panic-driven uncertainty for business cycles, asset prices and macroprudential regulation. Banking panic-driven uncertainty amplifies business cycle volatility, increases risk premia on asset prices and yields a new benefit from countercyclical bank capital buffers.

Suggested Citation

  • Mikkelsen, Jakob & Poeschl, Johannes, 2019. "Banking Panic Risk and Macroeconomic Uncertainty," MPRA Paper 94729, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:94729
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    File URL: https://mpra.ub.uni-muenchen.de/94729/1/MPRA_paper_94729.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Banking Panics; Systemic Risk; Endogenous Uncertainty; Macroprudential Policy;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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