Banking, Liquidity and Bank Runs in an Infinite Horizon Economy

Mark Gertler and Nobuhiro Kiyotaki
Additional contact information
Nobuhiro Kiyotaki: Princeton University

No 59, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a variation of the macroeconomic model of banking in Gertler and Kiyotaki (2011) that allows for household liquidity risks and bank runs as in Diamond and Dybvig (1983). As in Gertler and Kiyotaki, because bank net worth fluctuates with aggregate production, the spread in the expected rates of return on bank asset and deposit fluctuates countercyclically. However, because bank assets have a longer maturity than deposits, bank runs are possible as in Diamond and Dybvig. Whether a bank run equilibrium exists depends on bank balance sheets and a liquidation price for bank assets in equilibrium. While in normal times a bank run equilibrium may not exist, the possibility can arise in a recession. Overall, the goal is to present a framework that synthesizes the macroeconomic and microeconomic approaches to banking and banking instability.

Date: 2013
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (43)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2013/paper_59.pdf (application/pdf)

Related works:
Journal Article: Banking, Liquidity, and Bank Runs in an Infinite Horizon Economy (2015)
Working Paper: Banking, Liquidity and Bank Runs in an Infinite Horizon Economy (2014)
Working Paper: Banking, Liquidity and Bank Runs in an Infinite-Horizon Economy (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:59

Access Statistics for this paper

More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().