Working Paper: NBER ID: w27481
Authors: Mark Gertler; Nobuhiro Kiyotaki; Andrea Prestipino
Abstract: We develop a model of banking crises 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 a crisis. That is, there are "good" booms as well as "bad" 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 macropudential policy.
Keywords: credit booms; financial crises; macroprudential policy
JEL Codes: E00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Credit Boom (F65) | Banking Crisis (F65) |
| Bank Leverage (G21) | Likelihood of Banking Panics (E44) |
| Optimism Among Financial Intermediaries (G21) | Systemic Risks (F65) |
| Credit Boom (F65) | Increased Vulnerability in Financial Systems (F65) |
| Countercyclical Capital Buffers (E51) | Mitigation of Crises (H12) |
| Credit Boom (F65) | Likelihood of Crisis (Conditional Probability) (H12) |