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Aftermath of Banking Crises: Effectson Real and Monetary Variables

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  • Mrs. Poonam Gupta

Abstract

In this paper a simple optimizing model is developed to analyze the implications of a banking crisis. Banks are incorporated by assuming that they intermediate funds between firms and households. It is shown that when depositors perceive the quality of deposits to have deteriorated, they switch from deposits to cash. Because of the higher cost of liquidity, consumption, M2 and the M2 multiplier decline, interest rates on deposits and loans increase and output contracts. The findings of the paper match the key stylized facts of banking crises.

Suggested Citation

  • Mrs. Poonam Gupta, 2000. "Aftermath of Banking Crises: Effectson Real and Monetary Variables," IMF Working Papers 2000/096, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/096
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    Cited by:

    1. Serwa, Dobromil, 2010. "Larger crises cost more: Impact of banking sector instability on output growth," Journal of International Money and Finance, Elsevier, vol. 29(8), pages 1463-1481, December.
    2. Ambrosius, Christian, 2017. "What explains the speed of recovery from banking crises?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 257-287.
    3. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Staff Working Papers 03-1, Bank of Canada.
    4. Jokipii, Terhi & Monnin, Pierre, 2013. "The impact of banking sector stability on the real economy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1-16.
    5. Lagoarde-Segot, Thomas & Leoni, Patrick L., 2013. "Pandemics of the poor and banking stability," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4574-4583.
    6. Ambrosius, Christian, 2016. "What Explains the Speed of Recovery from Banking Crises?," VfS Annual Conference 2016 (Augsburg): Demographic Change 145606, Verein für Socialpolitik / German Economic Association.
    7. Sarah Sanya & Mr. Montfort Mlachila, 2010. "Post-Crisis Bank Behavior: Lessons From Mercosur," IMF Working Papers 2010/001, International Monetary Fund.
    8. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Staff Working Papers 02-12, Bank of Canada.
    9. Moore, Winston, 2009. "How do financial crises affect commercial bank liquidity? Evidence from Latin America and the Caribbean," MPRA Paper 21473, University Library of Munich, Germany.
    10. International Monetary Fund, 2009. "Paraguay: Selected Issues," IMF Staff Country Reports 2009/184, International Monetary Fund.

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