We develop a model of banking competition for deposits based on modern financial intermediation theory and industrial organization analysis. The standard demand deposit contract makes banks vulnerable to failure and introduces (endogenous) expectations-based vertical differentiation. A...

Suppose that information about the value of a risky asset is dispersed among many agents in the economy. The paper studies the rate at which successive price quotations from competitive market makers, which reflect the desired (notional) trades of risk- averse informed agents, reveal the value...

The classical doctrine of the Lender of Last Resort, elaborated by Thornton (1802) and Bagehot (1873), asserts that the Central Bank should lend to “illiquid but solvent” banks under certain conditions. Several authors have argued that this view is now obsolete: when interbank markets are...

We investigate the dynamic of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We look at the bias of prices as estimators of fundamental value in relation to traders' average expectations and note that prices are more (less) biased than...

Consider a duopoly market in which consumers have heterogeneous information about the quality differential q of the two goods. When firms are ignorant about q, consumers rationally believe that a firm with high market shares is likely to produce a high-quality good. As a result, firms try to...

This article argues that present financial regulatory arrangements within the European Monetary Union are not adequate either to preserve stability or to foster financial integration. Reform of financial regulation should concentrate on establishing clear procedures for crisis lending and...

We analyze the effects of strategic behavior by a large informed trader in a price discovery process used in opening auctions in continuous trading systems. It is found that the large informed trader manipulates the market using a contrarian strategy to neutralize the effect of the trades of...