Financial crises, bank risk exposure and government financial policy

Mark Gertler, Nobuhiro Kiyotaki, Albert Queralto

Research output: Contribution to journalArticle

109 Scopus citations

Abstract

A macroeconomic model with financial intermediation is developed in which the intermediaries (banks) can issue outside equity as well as short term debt. This makes bank risk exposure an endogenous choice. The goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk, but can also account for why banks adopt such a risky balance sheet in the first place. We use the model to assess quantitatively how perceptions of fundamental risk and of government credit policy in a crisis affect the vulnerability of the financial system ex ante. We also study the effects of macro-prudential policies designed to offset the incentives for risk-taking.

Original languageEnglish (US)
Pages (from-to)S17-S34
JournalJournal of Monetary Economics
Volume59
Issue numberSUPPL.
DOIs
StatePublished - Dec 15 2012

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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