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Analyzing a Systemic Crisis in Finance

  • A major lesson of the recent financial crisis is that money market freezes have major macroeconomic implications. This paper develops a tractable model in which we analyze the microeconomic and macroeconomic implications of a systemic banking crisis. In particular, we consider how the systemic crisis affects the optimal allocation of funding for businesses. We show that a central bank should reduce the interest rate to manage a systemic shock and hence smooth the macroeconomic consequences. Moreover, the analysis offers insight on the rational of bank behavior and the role of markets in a systemic crisis. We find that the failure to adopt the optimal policy can lead to economic fragility.

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Metadaten
Author of HS ReutlingenHerzog, Bodo
URN:urn:nbn:de:bsz:rt2-opus4-5445
URL:http://article.sapub.org/10.5923.j.jgt.20150402.01.html
ISSN:2325-0046
eISSN:2325-0054
Erschienen in:Journal of Game Theory
Publisher:Scientific & Academic Publishing
Place of publication:Rosemead, California
Document Type:Article
Language:English
Year of Publication:2015
Tag:financing channels; money-market freeze; systemic crises
Volume:4
Issue:2
Page Number:7
First Page:19
Last Page:25
DDC classes:330 Wirtschaft
Open Access?:Ja
Licence (German):License Logo  Open Access