NDLI: Pecuniary Externalities, Bank Overleverage, and Macroeconomic Fragility

Content Provider	Scilit
Author	Kato, Ryo Tsuruga, Takayuki
Copyright Year	2020
Description	Journal: SSRN Electronic Journal Pecuniary externalities in models with financial friction justify macroprudential policies for preventing economic agents’ excessive risk taking. We extend the Diamond and Rajan (2012) model of banks with the production factors and explore how a pecuniary externality affects a bank’s leverage. We show that the laissez-faire banks in our model take on excessive risks compared with the constrained social optimum. Our numerical simulations suggest that the crisis probability is 2-3 percentage points higher in the laissez-faire economy than in the constrained social optimum.
Related Links	https://www.iser.osaka-u.ac.jp/library/dp/2020/DP1078.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3551826
ISSN	10914358
e-ISSN	15565068
DOI	10.2139/ssrn.3551826
Journal	SSRN Electronic Journal
Language	English
Publisher	Elsevier BV
Publisher Date	2020-03-09
Access Restriction	Open
Subject Keyword	Journal: SSRN Electronic Journal Agricultural Economics Financial Crisis Liquidity Shortage Maturity Mismatch
Content Type	Text
Resource Type	Article
Subject	Public Health, Environmental and Occupational Health Psychiatry and Mental Health

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