Booms and banking crises

DOI
Publisher DOI
Abstract
Banking crises are rare events that break out in the midst of credit-intensive booms and bring about deep and long-lasting recessions. This paper presents a textbook dynamic stochastic general equilibrium model to explain these phenomena. The model features a nontrivial banking sector, where bank heterogeneity gives rise to an interbank market. Moral hazard and asymmetric information in this market may lead to sudden market freezes, banking crises, credit crunches, and severe “financial” recessions. Those recessions follow credit booms and are not necessarily triggered by large exogenous adverse shocks.
Date Issued
2016
Publication Type
Article
Subject(s)
Language(s)
en
Author(s)
Smets, Frank
Additional Credits
Journal
Journal of political economy
Publisher
University of Chicago Press
ISSN
0022-3808
Access(Rights)
restricted
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