Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Motivated by the build-up of shadow bank leverage prior to the financial crisis of 2007–2008, I develop a nonlinear macroeconomic model featuring excessive leverage accumulation and endogenous runs to capture the dynamics and quantify the build-up of instability. Incorporating monetary policy, I demonstrate that the zero lower bound increases the crises frequency and lowers welfare. The model is taken to U.S. data to estimate the run probability around the financial crisis of 2007–2008. The estimated run risk was already considerable in 2005 and kept increasing. Counterfactual simulations evaluate whether monetary interventions boost welfare and could have averted the financial crisis.