국제금융
Long-run inflation and financial panics
Does long-run inflation matter for financial stability? This paper studies how trend inflation affects the likelihood of banking panics in a New Keynesian DSGE model with endogenous bank runs. The results suggest that higher long-run inflation can raise run probabilities even without unexpected monetary tightening. The mechanism operates through firms’ price setting which becomes less responsive to current economic conditions as trend inflation increases. As a consequence, recessions are associated with weaker disinflation and thus higher real short-term rates, lower asset prices, and stronger pressure on bank balance sheets.
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