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Bank Liquidity and Stability in an Overlapping Generations Model

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Author Info
Qi, Jianping
Abstract

In an infinitely repeated version of the Diamond and Dybvig (1983) model, intergenerational transfers enable a bank to achieve interest rate smoothing and to provide depositors with liquidity insurance without Diamond and Dybvig's assumption of no side trades. The bank is subject to runs that may result from either excessive withdrawals or the lack of new deposits. The latter cause, which cannot occur in Diamond and Dybvig's one-generation model, implies that suspension of convertibility may not prevent bank runs. Government intervention may be necessary to maintain bank stability. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Article provided by Oxford University Press for Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 7 (1994)
Issue (Month): 2 ()
Pages: 389-417
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Handle: RePEc:oup:rfinst:v:7:y:1994:i:2:p:389-417

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  6. Ernst-Ludwig VON THADDEN, 1998. "Liquidity Creation through Banks and Markets : Multiple Insurance and Limited Market Access," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9820, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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