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Financial Crises and Systemic Bank Runs in a Dynamic Model of Banking

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  • Roberto Robatto

    (University Wisconsin-Madison)

Abstract

I present a new dynamic general equilibrium model of banking to analyze monetary policy during financial crises. A novel channel gives rise to multiple equilibria. In the good equilibrium, all banks are solvent. In the bad equilibrium, many banks are insolvent and subject to runs. The bad equilibrium is also characterized by deflation and a flight to liquidity. Some central bank interventions are more effective than others at eliminating the bad equilibrium. Interventions that do not eliminate the bad equilibrium still counteract deflation and reduce the losses of insolvent banks, but, for some parameter values, amplify the flight to liquidity.

Suggested Citation

  • Roberto Robatto, 2015. "Financial Crises and Systemic Bank Runs in a Dynamic Model of Banking," 2015 Meeting Papers 483, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:483
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    Cited by:

    1. Takatoshi Ito, 2014. "We Are All QE-sians Now," IMES Discussion Paper Series 14-E-07, Institute for Monetary and Economic Studies, Bank of Japan.
    2. 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.
    3. Robatto, Roberto, 2017. "Flight to liquidity and systemic bank runs," ESRB Working Paper Series 38, European Systemic Risk Board.
    4. Gertler, M. & Kiyotaki, N. & Prestipino, A., 2016. "Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises," Handbook of Macroeconomics, Elsevier.
    5. Stefan Nagel, 2016. "The Liquidity Premium of Near-Money Assets," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1927-1971.

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