Dissecting Mechanisms of Financial Crises
Intermediation and Sentiment
Bibliographic Data
| ID | 10176368 |
|---|---|
| Authors | Arvind Krishnamurthy (0000-0002-4590-6856), Wenhao Li (0000-0002-2517-3720) |
| Year | 2024 |
| Volume | 133 |
| Issue | 3 |
| Pages | 935-985 |
| Publication date | 2024-10-03 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Political Economy (JOURNAL) |
| Journal identifiers | ISSN: 0022-3808 • E-ISSN: 1537-534X |
| Publisher | University of Chicago Press (PUBLISHER • US) |
| DOI | 10.1086/733423 |
| OpenAlex | W4403094494 |
| Language | EN |
| References cited | 49 |
We develop a model of financial crises with both a financial amplification mechanism, via frictional intermediation, and a role for sentiment, via time-varying beliefs about an illiquidity state. The model accounts for the entire crisis cycle, matching data on the frothy precrisis behavior of asset markets and credit; the sharp transition to a crisis where asset values fall, disintermediation occurs, and output falls; and the slow postcrisis recovery in output. Both the intermediation and the belief mechanism are essential to match the crisis cycle. However, modeling the belief variation via either a Bayesian or a diagnostic model can match the broad patterns
Business · Economics · Financial intermediary · Financial system · Intermediation · Banking stability, regulation, efficiency · Economic theories and models · Finance · Global Financial Crisis and Policies
Growth Dynamics
Rare Disasters and Asset Markets in the Twentieth Century
Systemic Banking Crises Database
CoVaR
Financial Intermediation, Loanable Funds, and The Real Sector
The Aftermath of Financial Crises
Liquidity and leverage
Booms and Banking Crises
Uncertainty Shocks and Balance Sheet Recessions
The Housing Boom and Bust
The Tail That Wags the Economy
Bank Runs, Deposit Insurance, and Liquidity
Credit Cycles
| Citation velocity | historical |
|---|---|
| Highly cited | No |