Credit Booms, Financial Crises and Macroprudential Policy
By Nobuhiro Kiyotaki, Mark Gertler and Andrea Prestipino
Published in the Review of Economics
Abstract:
We develop a model of banking panics 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 crises. That is, there are ”bad booms” as well as ”good
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 macroprudential policy.
