Credit booms, financial crises, and macroprudential policy

Mark Gertler, Nobuhiro Kiyotaki, Andrea Prestipino

Research output: Contribution to journalArticle

1 Scopus citations

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 languageEnglish (US)
Pages (from-to)S8-S33
JournalReview of Economic Dynamics
Volume37
DOIs
StatePublished - Aug 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Bank runs
  • Countercyclical capital buffers
  • Credit booms
  • Financial crises
  • Macroprudential policy

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