Banking panics and policy responses
When policy makers have limited commitment power, self-fulfilling bank runs can arise as an equilibrium phenomenon. We study how such banking panics unfold in a version of the Diamond and Dybvig (1983) model. A run in this setting is necessarily partial, with only some depositors participating. In addition, a run naturally occurs in waves, with each wave of withdrawals prompting a further response from policy makers. In this way, the interplay between the actions of depositors and the responses of policy makers shapes the course of a crisis.
Year of publication: |
2010
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---|---|
Authors: | Ennis, Huberto M. ; Keister, Todd |
Published in: |
Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 57.2010, 4, p. 404-419
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Publisher: |
Elsevier |
Keywords: | Bank runs Limited commitment Time consistency Suspension of convertibility |
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