Modeling the Great Recession as a Bank Panic: Challenges / Lawrence Christiano, Hüsnü Dalgic, Xiaoming Li.

Format:

Book

Author/Creator:

Christiano, Lawrence.

Contributor:

National Bureau of Economic Research.

Dalgic, Hüsnü.

Li, Xiaoming.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29955.

NBER working paper series no. w29955

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

We highlight two challenges for the notion that a pure panic bank run played an important role in the dynamics in the Great Recession. First, the conclusion depends critically on ruling out any entry of new net worth into a sector experiencing a run. When interpreted as reflecting a cost of entry into banking, the resulting costs seem implausibly large across a range of models. Second, we show that the qualitative features of run equilibria (their existence, how many there are, etc.) are highly sensitive to minor technical changes in assumptions about banker entry. We report another result that is of independent interest. In particular, we describe implementation problems associated with standard macroprudential policy tools for reducing the risk of bank panic.

Notes:

Print version record

April 2022.