We study the macroeconomic effects of systemic bank runs in a neoclassical model with a microfounded banking system. In every period, the banks provide insurance against some idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In a...

How do market-based channels for the provision of liquidity affect financial liberalization and contagion? In order to answer this question, I extend the Diamond and Dybvig (1983) model of financial intermediation to a two-country environment with unobservable markets for borrowing and lending...

In the present paper, I analyze how unobservable savings affect risk sharing and bankruptcy decisions in the financial system. I extend the Diamond and Dybvig (1983) model of financial intermediation to an environment with heterogeneous intermediaries, aggregate uncertainty and agents' hidden...

How does the presence of decentralized market-based channels for borrowing and lending affect financial integration and financial contagion? To answer this question, I develop a two-country model of financial intermediation, where banks have access to country-specific investment technologies,...

I develop a theory of financial intermediation to explore how the availability of trading opportunities affects the link between the liquidity of financial institutions and their default decisions. In it, banks hedge against liquidity shocks either in the interbank market or by using a costly...

We report evidence that bank liquidity ratios (liquid assets as a percentage of total assets) decrease during the process of economic development. To reconcile this observation with (i) the increasing importance of financial markets and (ii) the increasing direct participation of individual...

We study the macroeconomic effects of bank runs in a neoclassical growth model with a fully microfounded banking system. In every period, the banks provide insurance against idiosyncratic liquidity shocks, but the possibility of sunspot-driven bank runs distorts the equilibrium allocation. In...

We develop a growth model with banks and markets to reconcile the observed decreasing trend in the relative liquidity of many financial systems around the world with the increasing household participation in direct market trades. At low levels of economic development, the presence of fixed entry...

We develop a model where banks invest in reserves and loans, and face aggregate liquidity shocks. Banks with liquidity shortage sell loans on the interbank market. Two equilibria emerge. In the no default equilibrium, all banks hold enough reserves and remain solvent. In the mixed equilibrium,...

We develop a model where banks invest in reserves and loans, and face aggregate liquidity shocks. Banks with liquidity shortage sell loans on the interbank market. Two equilibria emerge. In the no default equilibrium, all banks hold enough reserves and remain solvent. In the mixed equilibrium,...