Title

Credit Booms, Financial Crises and Macroprudential Policy

Author(s)

Mark Gertler Mark Gertler (New York University)

Nobuhiro Kiyotaki Nobuhiro Kiyotaki (Princeton University)

Andrea Prestipino Andrea Prestipino (Federal Reserve Board)

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.

Creation Date

2020-03

Section URL ID

Paper Number

2020-62

URL

http://www.princeton.edu/~kiyotaki/papers/GKP_RED_2020_latex.pdf

File Function

Jel

E00, G21

Keyword(s)

banking crisis, credit booms

Suppress

false

Series

13