Stock Market Booms, Endogenous Credit Creation and Banking for Stability

Carl ChiarellaPeter FlaschelFlorian HartmannChristian Proaño
Written By SCEPA

WORKING PAPER

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This paper studies the implications of the present broad banking system for macroeconomic stability.

Within the stylized theoretical framework set up here, we show that in the second system macroeconomic stability is guaranteed by some weak assumptions on the behavior of economic agents. Moreover, while a sufficient loan supply can be guaranteed in such a framework, the rationale for bank runs can be eliminated, in contrast to what is likely to happen under traditional broad banking.

SCEPA
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