Credit booms, financial crises, and macroprudential policy

We develop a model of banking panics which is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in crises. That is, there are “bad booms” as well as “good booms” in the language of Gorton and Ordon...

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Bibliographic Details
Published inReview of economic dynamics Vol. 37; pp. S8 - S33
Main Authors Gertler, Mark, Kiyotaki, Nobuhiro, Prestipino, Andrea
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.08.2020
Subjects
Bank runs
Countercyclical capital buffers
Credit booms
Financial crises
Macroprudential policy
Macroprudential policy
Countercyclical capital buffers
E44
E32
G33
E23
G21
G01
Financial crises
Credit booms
Bank runs
Online AccessGet full text
ISSN1094-2025
1096-6099
DOI10.1016/j.red.2020.06.004

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Summary:We develop a model of banking panics which is consistent with two important features of the data: First, banking crises are usually preceded by credit booms. Second, credit booms often do not result in crises. That is, there are “bad booms” as well as “good booms” in the language of Gorton and Ordonez (2019). We then consider how the optimal macroprudential policy weighs the benefits of preventing a crisis against the costs of stopping a good boom. We show that countercyclical capital buffers are a critical feature of a successful macroprudential policy.
ISSN:1094-2025
1096-6099
DOI:10.1016/j.red.2020.06.004