Discussion Paper Details
Please find the details for DP13834 in an easy to copy and paste format below:
Title: Externalities and financial crisis - enough to cause collapse?
Author(s): Marcus Miller and Lei Zhang
Publication Date: July 2019
Keyword(s): bank runs, cross-border banking, Illiquidity, lender of last resort and Pecuniary externalities
Programme Area(s): Financial Economics
Abstract: After the boom in US subprime lending came the bust - with a run on US shadow banks. The magnitude of boom and bust were, it seems, amplified by two significant externalities triggered by aggregate shocks: the endogeneity of bank equity due to mark-to-market accounting and of bank liquidity due to 'fire-sales' of securitised assets. We show how adding a systemic 'bank run' to the canonical model of Adrian and Shin allows for a tractable analytical treatment - including the counterfactual of complete collapse that forces the Treasury and the Fed to intervene.
For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13834
Miller, M and Zhang, L. 2019. 'Externalities and financial crisis - enough to cause collapse?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13834