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.
| Author of HS Reutlingen | Herzog, 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: | Journal article |
| Language: | English |
| Publication year: | 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): |  Open Access |
