Recent research has argued that the multiple-equilibria explanation of bank runs is inconsistent with a basic stylized fact: bank runs tend to occur under poor economic conditions. This conclusion is not well justified. Reasonable theories that explain bank runs as self-fulfilling events can...

We study optimal government policy in an economy where (i) search frictions create a coordination problem and generate multiple Pareto-ranked equilibria and (ii) the government finances the provision of a public good by taxing trade. The government must choose the tax rate before it knows which...

In this note I review evidence suggesting that shortages of small change occurred in the territory of Argentina during the end of the eighteenth and the beginning of the nineteenth centuries. For the colonial period (until 1810) the main pieces of evidence are: (i) the widespread use of informal...

Important changes in U.S. banking regulation that took place during the nineties have inspired concern about the long-run size distribution of banks. The asset-size distribution of commercial banks is skewed to the right, and there has been a pronounced increase in asset concentration in the...

This paper introduces an approach to the study of optimal government policy in economies characterized by a coordination problem and multiple equilibria. Such models are often criticized as not being useful for policy analysis because they fail to assign a unique prediction to each possible...

I study the limit rule for bilateral bargaining when agents recognize that the aggregate economy (influencing the match surplus) follows a dynamic process that randomly switches back and forth between a finite number of possible states. The rule derived in this paper is of special importance for...

In this paper we study dollarization as a commitment device that the Central Bank could use to avoid getting involved in an undesirable banking-sector bailout. We show how a political process could induce an equilibrium outcome that differs from the one that a benevolent Central Bank would want...

This paper introduces an approach to the study of optimal government policy in economies characterized by a coordination problem and multiple equilibria. Such models are often criticized as not being useful for policy analysis because they fail to assign a unique prediction to each possible...

We examine how the possibility of a bank run affects the investment decisions made by a competitive bank. Cooper and Ross (1998, Bank runs: liquidity costs and investment distortions. Journal of Monetary Economics 41, 27–38) have shown that when the probability of a run is small, the bank will...

We study optimal fiscal policy in an economy where (i) search frictions create a coordination problem and generate multiple, Pareto-ranked equilibria and (ii) the government finances the provision of a public good by taxing market activity. The government must choose the tax rate before it knows...