Bank Runs, Fragility, and Credit Easing / Manuel Amador, Javier Bianchi.

Format:

Book

Author/Creator:

Amador, Manuel.

Contributor:

National Bureau of Economic Research.

Bianchi, Javier.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29397.

NBER working paper series no. w29397

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We present a tractable dynamic macroeconomic model of self-fulfilling bank runs. A bank is vulnerable to a run when a loss of investors' confidence triggers deposit withdrawals and leads the bank to default on its obligations. We analytically characterize how the vulnerability of an individual bank depends on macroeconomic aggregates and how the number of banks facing a run affects macroeconomic aggregates in turn. In general equilibrium, runs can be partial or complete, depending on aggregate leverage and the dynamics of asset prices. Our normative analysis shows that the effectiveness of credit easing and its welfare implications depend on whether a financial crisis is driven by fundamentals or by self-fulfilling runs.

Notes:

Print version record

October 2021.