Credit booms, financial crises, and macroprudential policy

Mark Gertler, Nobuhiro Kiyotaki, Andrea Prestipino

    Research output: Contribution to journalArticle

    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

    Keywords

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

    ASJC Scopus subject areas

    • Economics and Econometrics

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