A Macroeconomic Model of Bank Runs

24 Pages Posted: 23 Nov 2018

See all articles by Alexandr Kopytov

Alexandr Kopytov

University of Pennsylvania, The Wharton School

Haotian Xiang

University of Pennsylvania, The Wharton School

Date Written: October 31, 2018

Abstract

We present a dynamic general equilibrium model of bank runs where global games are utilized as the equilibrium selection criterion. Coordination failures among bank creditors lead to panic-based runs. An endogenous borrowing constraint emerges as banks internalize the impact of their leverage decisions on the run probability. Our analyses suggest that runs triggered by panics impose a significant cost on the aggregate economy while those driven solely by fundamentals have almost negligible impacts. We highlight the quantitative importance of equilibrium selection criteria for our counterfactual results.

JEL Classification: E32, G01

Suggested Citation

Kopytov, Alexandr and Xiang, Haotian, A Macroeconomic Model of Bank Runs (October 31, 2018). Available at SSRN: https://ssrn.com/abstract=3276269 or http://dx.doi.org/10.2139/ssrn.3276269

Alexandr Kopytov

University of Pennsylvania, The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

Haotian Xiang (Contact Author)

University of Pennsylvania, The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

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