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Financial Crises and Systemic Bank Runs in a Dynamic Model of Banking

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  • Roberto Robatto

    (University Wisconsin-Madison)

Abstract

I present a new dynamic general equilibrium model of banking to analyze monetary policy during financial crises. A novel channel gives rise to multiple equilibria. In the good equilibrium, all banks are solvent. In the bad equilibrium, many banks are insolvent and subject to runs. The bad equilibrium is also characterized by deflation and a flight to liquidity. Some central bank interventions are more effective than others at eliminating the bad equilibrium. Interventions that do not eliminate the bad equilibrium still counteract deflation and reduce the losses of insolvent banks, but, for some parameter values, amplify the flight to liquidity.

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  • Roberto Robatto, 2015. "Financial Crises and Systemic Bank Runs in a Dynamic Model of Banking," 2015 Meeting Papers 483, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:483
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    Cited by:

    1. Takatoshi Ito, 2014. "We Are All QE-sians Now," IMES Discussion Paper Series 14-E-07, Institute for Monetary and Economic Studies, Bank of Japan.
    2. Mark Gertler & Nobuhiro Kiyotaki, 2015. "Banking, Liquidity, and Bank Runs in an Infinite Horizon Economy," American Economic Review, American Economic Association, vol. 105(7), pages 2011-2043, July.
    3. Roberto Robatto, 2019. "Systemic Banking Panics, Liquidity Risk, and Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 20-42, October.
    4. Mark Gertler & Nobuhiro Kiyotaki & Andrea Prestipino, 2020. "A Macroeconomic Model with Financial Panics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 240-288.
    5. Elena Mattana & Ettore Panetti, 2021. "The Welfare Costs of Self‐Fulfilling Bank Runs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(2-3), pages 401-440, March.
    6. Roberto Robatto, 2018. "Flight to Liquidity and Systemic Bank Runs," 2018 Meeting Papers 276, Society for Economic Dynamics.
    7. Robatto, Roberto, 2017. "Flight to liquidity and systemic bank runs," ESRB Working Paper Series 38, European Systemic Risk Board.
    8. Gertler, M. & Kiyotaki, N. & Prestipino, A., 2016. "Wholesale Banking and Bank Runs in Macroeconomic Modeling of Financial Crises," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1345-1425, Elsevier.
    9. Stefan Nagel, 2016. "The Liquidity Premium of Near-Money Assets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1927-1971.

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