Description:
This paper aims at modelling bank runs in a behavioural macroeconomic context. Specifically, it extends Gertler, Kiyotaki and Prestipino (2020 a ) by assuming boundedly rational expectations, allowing for optimistic and pessimistic attitudes to play a role in the asset pricing mechanism, and modifying the bankers’ maximization problem, such that they have to make decisions (i.e. set their leverage multiple) while taking the prevailing optimistic and pessimistic expectations into consideration. I show that the behavioural aspects in the model, coupled with the possibility of an economy-wide panic, can produce results that are comparable to Global Financial Crisis witnessed events: when a bank run equilibrium is feasible, even a small-sized exogenous shock (e.g. a negative shock to capital quality) can induce bank panics which force banks to fire-sell their assets, leading to a sharp contract in the capital price, investment and the real activity; news-driven booms can lead to subsequent financial and real busts, even in absence of any capital shocks