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11. Some Reflections on the Recent Financial Crisis

verfasst von : Gary Gorton

Erschienen in: Trade, Globalization and Development

Verlag: Springer India

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Abstract

Economic growth involves metamorphosis of the financial system. Forms of banks and bank money change. These changes, if not addressed, leave the banking system vulnerable to crisis. There is no greater challenge in economics than to understand and prevent financial crises. The financial crisis of 2007-2008 provides the opportunity to reassess our understanding of crises. All financial crises are at root bank runs, because bank debt—of all forms—is vulnerable to sudden exit by bank debt holders. The current crisis raises issues for crisis theory. And, empirically, studying crises is challenging because of small samples and incomplete data.

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Vorheriges Kapitel Convergence in a Three-Factor Dynamic Model: Finite Versus Infinite Lives

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These are the classifications of Demirgϋç-Kunt and Detragiache (2002, 2005), Caprio and Klingebiel (1996, 1999), Reinhart and Rogoff (2008), and Laeven and Valencia (2008). Laeven and Valencia’s database is available at http://www.luclaeven.com/Data.htm.

Boyd, De Nicolò and Loukoianova (2011) use empirical measures of adverse shocks to the banking industry to forecast subsequent government responses. The government responds after the shocks.

See, e.g., Mills (1908). The term also refers to the float of checks; see Lockhart (1921a, b), Sprague (1910), and Richardson (2006). There is a theory literature on interbank markets; see, e.g., Rochet and Tirole (1996), Allen and Gale (2000), Freixas et al. (2000), and Dasgupta (2004). And, with respect to modern interbank markets, there is also an empirical literature and simulations of interbank exposures; see Upper (2006).

For example, see Diaz-Alejandro (1985), Calvo (1995), Kaminsky and Reinhart (1999), and Dornbusch (2001).

See Bordo et al. (1994) and Ratnovski and Huang (2009) for discussions of Canada.

There is some interesting work on crises exacerbating downturns. See, for example, Bordo and Haubrich (2009) and Ziebarth (2011).

Though see Furceri and Zdzienicka (2009) on the effects of crises on human capital.

There is a large literature on the Diamond and Dybvig model, many extensions and discussions, but I will, for the most part, not go into this literature.

The important papers are Morris and Shin (2001) and Goldstein and Pauzner (2005). The multiplicity of equilibria can be eliminated in other ways; see, e.g., Postlewaite and Vives (1987).

See Gorton (2010) and Gorton and Metrick (2012).

Although see Martin et al. (2010).

Jacklin (1987) discusses some of the trading restrictions in the Diamond and Dybvig model.

We know that the clearing houses acted during crises, but we do not know how agents’ beliefs were revised in response. We just know that eventually suspension of convertibility was lifted.

That is, a “reverse” sunspot just compounds the problem of a lack of an explanation.

There are other models of runs, as well. Diamond and Rajan (2001) show a model of bank fragility that is different than Diamond and Dybvig. It connects the asset side of banks to the liability side more specifically, showing that a kind of fragility is required, and displays a collective action problem. Another interesting example is Rochet and Vives (2004).

See Gorton (1996, 1999).

Young (1910, p. 608) writes that the organization could expel weak banks, enabling “the clearing house as a body to exercise such supervision of any weak bank as to amount to a virtual taking over of its management till it is again in sound condition.”

See Cannon (1910), Gorton (1984, 1985), Timberlake (1984), Gorton and Mullineaux (1987), Richardson (2006), and Moen and Tallman (2010).

Also see Bernanke et al. (1999).

And, to be clear, the authors of these papers never claimed that their models were such crisis theories. Others have made this claim since the financial crisis.

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Titel: Some Reflections on the Recent Financial Crisis
verfasst von: Gary Gorton
Verlag: Springer India
Buch: Trade, Globalization and Development
Print ISBN: 978-81-322-1150-1

Electronic ISBN: 978-81-322-1151-8

Copyright-Jahr: 2014
DOI: https://doi.org/10.1007/978-81-322-1151-8_11