We study efficiency properties of competitive economies in which banks provide liquidity insurance and interact on secondary asset markets. While all banks are subject to extrinsic risk, a bank's portfolio choice determines whether it is prone to a bank run in one of the extrinsic states. Asset...

We study efficiency properties of competitive economies in which banks provide liquidity insurance and interact on secondary asset markets. While all banks are subject to extrinsic risk, a bank's portfolio choice determines whether it is prone to a bank run in one of the extrinsic states. Asset...

In the present paper we show how simple monetary policies can mitigate real effects of credit frictions. We consider stationary overlapping generations economies in which consumers are not equally efficient in producing capital and cannot commit to repay loans. The presence of money in itself...

We study efficiency properties of competitive economies in which banks provide liquidity insurance and interact on secondary asset markets. While all banks are subject to extrinsic risk, a bank's portfolio choice determines whether it is prone to a bank run in one of the extrinsic states. Asset...