Modelling the Great Recession as a Bank Panic: Challenges

Lawrence Christiano*, Husnu Dalgic, Xiaoming Li

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


We highlight two challenges for the notion that a pure panic bank run played an important role in the dynamics in the Great Recession. First, the conclusion depends critically on ruling out any entry of new net worth into a sector experiencing a run. We find that the implied cost of entry is implausibly large, across a range of pure panic models. Second, we show that the qualitative features of run equilibria (their existence, how many there are, etc.) are highly sensitive to minor technical changes in assumptions about banker entry. We report another result that is of independent interest. In particular, we describe implementation problems associated with standard macroprudential policy tools for reducing the risk of bank panic.

Original languageEnglish (US)
Pages (from-to)S200-S238
Issue numberS1
StatePublished - Jun 2022

ASJC Scopus subject areas

  • Economics and Econometrics


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