Banking, Liquidity and Bank Runs in an Infinite-Horizon Economy / Mark Gertler, Nobuhiro Kiyotaki.

Format:

Book

Author/Creator:

Gertler, Mark.

Contributor:

National Bureau of Economic Research.

Kiyotaki, Nobuhiro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19129.

NBER working paper series no. w19129

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We develop a variation of the macroeconomic model with banking in Gertler and Kiyotaki (2011) that allows for liquidity mismatch and bank runs as in Diamond and Dybvig (1983). As in Gertler and Kiyotaki, because bank net worth fluctuates with aggregate production, the spread between the expected rates of return on bank assets and deposits fluctuates counter-cyclically. However, because bank assets are less liquid than deposits, bank runs are possible as in Diamond and Dybvig. Whether a bank run equilibrium exists depends on bank balance sheets and an endogenously determined liquidation price for bank assets. While in normal times a bank run equilibrium may not exist, the possibility can arise in a recession. We also analyze the effects of anticipated bank runs. Overall, the goal is to present a framework that synthesizes the macroeconomic and microeconomic approaches to banking and banking instability.

Notes:

Print version record

June 2013.