This chapter surveys the literature on bubbles, financial crises, and systemic risk. The first
part of the chapter provides a brief historical account of bubbles and financial crisis. The …

This article surveys the macroeconomic implications of financial frictions. Financial frictions
lead to persistence and when combined with illiquidity to non-linear amplification effects …

We develop a structural empirical model of the US banking sector. Insured depositors and
run-prone uninsured depositors choose between differentiated banks. Banks compete for …

This paper briefly describes recent papers on the economics of rational herding in financial
markets. Some models can predict perfect herding, in which rational agents all act alike …

We review the contemporary theory of financial intermediation. The focus is on contributions
in the past 15 years or so that have advanced our understanding of why financial …

Even though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are
common knowledge, we demonstrate the uniqueness of equilibrium when speculators face …

Diamond and Dybvig (1983) show that while demand–deposit contracts let banks provide
liquidity, they expose them to panic‐based bank runs. However, their model does not …

Empirical evidence suggests that banking panics are related to the business cycle and are
not simply the result of “sunspots.” Panics occur when depositors perceive that the returns …

This paper develops a broad concept of systemic risk, the basic economic concept for the
understanding of financial crises. It is claimed that any such concept must integrate systemic …

A complex financial system comprises both financial markets and financial intermediaries.
We distinguish financial intermediaries according to whether they issue complete contingent …