Federal Reserve Bank of Richmond

We study the causes and consequences of bank runs using a novel dataset on bank runs in the United States from 1863 to 1934. Applying natural language processing to historical newspapers, we identify 4,049 runs on individual banks. Runs are considerably more likely in weak banks but also occur in strong banks, especially in response to negative news about the real economy or the broader banking system. However, runs typically only result in failure for banks with weak fundamentals. Strong banks survive runs through various mechanisms, including interbank cooperation, equity injections, public signals of strength, and suspension of convertibility. At the local level, bank failures (with and without runs) translate into substantially larger declines in deposits and lending than runs without failures. Our findings suggest that poor bank fundamentals are necessary for bank runs to translate into failure and for bank distress to generate severe economic consequences.

This paper analyzes the discrepancy between partial and general equilibrium approaches to unemployment insurance evaluation using a life-cycle model. We study an OLG economy with learning-by-doing human capital accumulation. Agents can be employed or unemployed. While unemployed, agents costly search for new jobs. We calibrate the model to the U.S. economy and find that the replacement ratio and potential duration are close to the current one. However, in contrast with the previous literature, we find that optimal policies under general and partial equilibrium are almost the same. Through a series of exercises we conclude that the life-cycle model provides two key components, crucial for welfare evaluation: it emphasizes workers' insurance needs by accurately reproducing the left tail of the wealth distribution, and generates a realistic response of precautionary savings to transfers. As a result, factor prices are largely invariant to UI policy, and the discrepancy between general and partial equilibrium welfare evaluations essentially vanishes.

Using CPS microdata, 1976-2024, we estimate trend and cyclical components of un employment and labor force participation for 44 age-gender-education groups. We fit a parsimonious state-space model in which each series is the sum of latent cohort and time-varying age effects and a latent cyclical factor shared across unemployment and participation, without imposing structural covariates. Aggregating group trends with observed population shares, we find that population aging and educational upgrading explain most long-run movements in aggregate trends, while cohort effects drive large gender differences in participation. Combining our estimates with demographic projec tions and an estimated cohort model of education shares, we forecast that over the next two decades, trend participation declines by about 1.5 pp and trend unemployment falls by about 0.4 pp, remaining historically low.

We study optimal policy in a dynamic general equilibrium model where heterogeneous monopolistic competitive firms pay a fixed cost to adopt a frontier technology that grows exogenously. Using Mean Field Games tools, we show that the optimal policy consists of exactly two time-invariant subsidies: one correcting the static misallocation from market power, and one correcting the dynamic under-incentive to adopt. This holds outside of balanced growth paths, for any initial distribution of technology gaps. We analyze a simplified version of the model that aggregates to a Neoclassical Growth Model with an S-shaped production function whenever complementarities are strong, and fully characterize when the optimal policy uniquely implements the first best. When it does not, two novel results emerge: the efficient allocation prescribes escaping a poverty trap—providing an explicit optimality foundation for a Big Push—and, more surprisingly, escaping an abundance trap, where dismantling adopted technologies is optimal. In both cases, a temporary, costless supplementary policy restores unique implementation. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Bank failures can stem from runs on otherwise solvent banks or from losses that render banks insolvent, regardless of withdrawals. Disentangling the relative importance of liquidity and solvency in explaining bank failures is central to understanding financial crises and designing effective financial stability policies. This paper reviews evidence on the causes of bank failures. Bank failures—both with and without runs—are almost always related to poor fundamentals. Low recovery rates in failure suggest that most failed banks that experienced runs were likely fundamentally insolvent. Examiners’ postmortem assessments also emphasize the primacy of poor asset quality and solvency problems. Before deposit insurance, runs commonly triggered the failure of insolvent banks. However, runs rarely caused the failure of strong banks, as such runs were typically resolved through other mechanisms, including interbank cooperation, equity injections, public signals of strength, or suspension of convertibility. We discuss the policy implications of these findings and outline directions for future research.