Abstract
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.
Original language | English (US) |
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Pages (from-to) | S8-S33 |
Journal | Review of Economic Dynamics |
Volume | 37 |
DOIs | |
State | Published - Aug 2020 |
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
Keywords
- Bank runs
- Countercyclical capital buffers
- Credit booms
- Financial crises
- Macroprudential policy