NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

FINANCIAL CRISES AND LIQUIDITY SHOCKS: A Bank-Run Perspective

Guillermo A. Calvo

NBER Working Paper No. 15425
Issued in October 2009
NBER Program(s):   IFM

This note is motivated by trying to understand the macroeconomic implications of assuming that periods of financial bonanza and turmoil are driven by financial innovation and collapse in line with the "bank run" literature of the Diamond-Dybvig (1983) variety. Bypassing a host of important but, for the present purposes, secondary details the note assumes that the initial effects of financial innovation and crash can be summarized by a parameter that determines the "liquidity" or "moneyness" of land or capital. This simplification helps to shed light on some issues that are at the center of the policy debate. In particular, one can show that preventing price deflation is not enough to offset asset meltdown. Furthermore, lower policy interest rates increase asset prices and steady-state output which, however, gets reversed as liquidity is destroyed. An interesting result is that, in the neighborhood of a first-best capital allocation, an increase in the moneyness of capital may lower the welfare of the representative individual, even if the higher liquidity of capital is sustainable and, hence, not destroyed by future crash. Moreover, an extension of the basic model supports the conjecture that low policy interest rates may have given incentives to the development of "shadow banking."

download in pdf format
   (178 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15425

Published: Calvo, Guillermo, 2012. "Financial crises and liquidity shocks a bank-run perspective," European Economic Review, Elsevier, vol. 56(3), pages 317-326. citation courtesy of

Users who downloaded this paper also downloaded* these:
Cooper and Ross w3921 Bank Runs: Liquidity and Incentives
Reinhart and Rogoff w14656 The Aftermath of Financial Crises
Acharya, Shin, and Yorulmazer w15567 Crisis Resolution and Bank Liquidity
Brunnermeier w14612 Deciphering the Liquidity and Credit Crunch 2007-08
Schularick and Taylor w15512 Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us