We build a macroeconomic model that centers on liquidity transformation in the financial sector. Intermediaries maximize liquidity creation by issuing securities that are money-like in normal times but become illiquid in a crash when collateral is scarce. We call this process shadow banking. A...

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...

We trace the origins of China's rapidly developing shadow banking sector to the adoption of stricter liquidity rules by Chinese regulators in the late 2000s. Our analysis exploits cross-sectional di¤erences in the bindingness of these rules along with time variation in product characteristics....

This paper describes how imperfect information in both capital and labor markets can, in a context of maximizing firms and perfectly flexible prices and wages, give rise to cyclical variations in unemployment whose character closely resembles that of observed business cycles

This paper provides the first comprehensive econometric analysis of the causes of bank distress during the Depression. We assemble bank-level data for virtually all Fed member banks, and combine those data with county-level, state-level, and national-level economic characteristics to capture...

During the contraction from 1929 through 1933, the Federal Reserve System tracked changes in the status of all banks operating in the United States and determined the cause of each bank suspension. This essay analyzes chronological patterns in aggregate series constructed from that data. The...

The equity and debt prices of large nonbank firms contain information about the future state of the banking system. In this sense, banks are informationally central. The amount of this information varies over time and over equity and debt. During a financial crisis banks are, by definition of a...

Both investors and borrowers are concerned about liquidity. Investors desire liquidity because they are uncertain about when they will want to eliminate their holding of a financial asset. Borrowers are concerned about liquidity because they are uncertain about their ability to continue to...

This paper provides an asymmetric information framework for understanding the nature of financial crises. It provides the following precise definition of a financial crisis: A financial crisis is a disruption to financial markets in which adverse selection and moral hazard problems become much...

Diamond-Dybvig [1983] provide a model of intermediation in which bank runs are driven by pessimistic depositor expectations. Models which address these issues are important in the ongoing discussion which weighs the costs (incentive problems) and the benefits (preventing runs) of deposit...