Financial Innovation, Macroeconomic Stability and Systemic Crises

Bibliographic Data

ID9717567
AuthorsPrasanna Gai (0000-0002-1664-3946, Australian National University and Bank of England), Sujit Kapadia (Bank of England), Stephen Millard (Bank of England), Ander Perez (London School of Economics and Political Science), Ander Pérez-Orive (0000-0002-5390-0163, London School of Economics and Political Science)
Year2008
Volume118
Issue527
Pages401-426
Publication date2008-03-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueThe Economic Journal (JOURNAL)
Journal identifiersISSN: 0013-0133 • E-ISSN: 1468-0297
PublisherOxford University Press (OUP) (PUBLISHER)
DOI10.1111/j.1468-0297.2007.02127.x
OpenAlexW2073670694
LanguageEN
Citations received2
References cited30

We present a general equilibrium model of intermediation designed to capture some of the key features of the modern financial system. The model incorporates financial constraints and state-contingent contracts, and contains a clearly defined pecuniary externality associated with asset fire sales during periods of stress. If a sufficiently severe shock occurs during a credit expansion, this externality is capable of generating a systemic financial crisis that may be self-fulfilling. Our model suggests that financial innovation and greater macroeconomic stability may have made financial crises in developed countries less likely than in the past but potentially more severe

Atlanta · Economics · Financial crisis · Financial market · Keynesian economics · Management · New england · Political science · Schools of economic thought · Systemic risk · Banking stability, regulation, efficiency · Economic theories and models · Finance · Global Financial Crisis and Policies · History · Law

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