Credit booms, financial crises, and macroprudential policy

Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino

doi:10.1016/j.red.2020.06.004

Credit booms, financial crises, and macroprudential policy

Mark Gertler, Nobuhiro Kiyotaki, Andrea Prestipino

Research output: Contribution to journal › Article › peer-review

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)
Pages (from-to)	S8-S33
Journal	Review of Economic Dynamics
Volume	37
DOIs	https://doi.org/10.1016/j.red.2020.06.004
State	Published - Aug 2020

Keywords

Bank runs
Countercyclical capital buffers
Credit booms
Financial crises
Macroprudential policy

ASJC Scopus subject areas

Economics and Econometrics

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title = "Credit booms, financial crises, and macroprudential policy",

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.",

keywords = "Bank runs, Countercyclical capital buffers, Credit booms, Financial crises, Macroprudential policy",

author = "Mark Gertler and Nobuhiro Kiyotaki and Andrea Prestipino",

note = "Funding Information: We would like to thank the participants of various seminars and conferences, particularly Juliane Begenau, Jonathan Heathcote, Urban Jermann, Vincenzo Quadrini and Alejandro Van der Ghote for thoughtful comments. The Financial Support of the National Science Foundation , grant SES-1917916 , is gratefully acknowledged. Publisher Copyright: {\textcopyright} 2020 Elsevier Inc.",

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AU - Kiyotaki, Nobuhiro

AU - Prestipino, Andrea

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N2 - 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.

AB - 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.

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KW - Financial crises

KW - Macroprudential policy

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Credit booms, financial crises, and macroprudential policy

Abstract

Keywords

ASJC Scopus subject areas

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