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...

This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the...

There has been considerable progress in developing macroeconomic models of banking crises. However, most of this literature focuses on the retail sector where banks obtain deposits from households. In fact, the recent financial crisis that triggered the Great Recession featured a disruption of...

We develop a variation of the macroeconomic model with banking in Gertler and Kiyotaki (2011) that allows for liquidity mismatch and bank runs as in Diamond and Dybvig (1983). As in Gertler and Kiyotaki, because bank net worth fluctuates with aggregate production, the spread between the expected...

The paper studies under what conditions the value of the firm occasionally increases for a while before it suddenly drops, like a "bubble". We consider the environment where the trend of net cash flow from a firm's production depends on uncertain quality of a manager, and the manager is...

This paper develops a tractable overlapping generations model that is useful for analyzing both the short and long run impact of fiscal policy and social security. It modifies the Blanchard (1985)/Weil (1987) framework to allow for life/cycle behavior. This is accomplished by introducing random...

This paper characterizes a multi-period production economy in which borrowers and lenders enter long-term financial contracts. A key feature is that aggregate production and borrowers' capacity to absorb debt -- their "financial capacity" - are jointly determined endogenous variables, in the...

In the spring of 2013 the Bank of Japan introduced a state-of-the-art monetary policy which included among other things inflation targeting and aggressive use of forward guidance. In contrast to the predictions of conventional macroeconomic theory, these policies have had only very limited...

Entrepreneurs appear to borrow largely against their near-term revenues, even when their investment has a longer horizon. In this paper, we develop a model of credit horizons. A question of particular concern to us is whether persistently low interest rates can stifle economic activity. With...

A long standing issue in macroeconomics is that of the relation of imperfect competition to fluctuations in output. In this paper we examine the relation between monopolistic competition and the role of aggregate demand in the determination of output. We first show that monopolistically...