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Bank Runs In Open Economies And The International Transmission Of Panics

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Author Info

  • GARBER, P.M.
  • GRILLI, V.

Abstract

In this paper, we extend the bank run literature to an open economy model. We show that a foreign banking system, by raising deposit rates in the presence of a domestic banking panic, may generate sufficient liquid resources to acquire assets sold by the domestic banking system at bargain prices. In this case, foreign depositors will benefit from the domestic panic. We also show that our simple model is able to generate the spreading of panics. Perhaps not surprisingly, the crucial element in determining the propagation of financial crises is the effect of interest rates on savings decisions.

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Bibliographic Info

Paper provided by Yale - Economic Growth Center in its series Papers with number 552.

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Length: 19 pages
Date of creation: 1988
Date of revision:
Handle: RePEc:fth:yalegr:552

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Postal: U.S.A.; YALE UNIVERSITY, ECONOMIC GROWTH CENTER, YALE STATION NEW-HAVEN CONNECTICUT 06520 U.S.A
Phone: (203) 432-3610
Fax: (203) 432-3898
Web page: http://www.econ.yale.edu/~egcenter/
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Keywords: economic models ; banks ; savings;

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References

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  1. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
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Cited by:
  1. Peter Temin, 1993. "Transmission of the Great Depression," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 87-102, Spring.
  2. Vaugirard, Victor, 2007. "Informational contagion of bank runs in a third-generation crisis model," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 403-429, April.
  3. de Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic Risk: A Survey," CEPR Discussion Papers 2634, C.E.P.R. Discussion Papers.
  4. Michael Chui & Simon Hall & Ashley Taylor, 2004. "Crisis spillovers in emerging market economies: interlinkages, vulnerabilities and investor behaviour," Bank of England working papers 212, Bank of England.
  5. Miller, V., 1998. "Domestic bank runs and speculative attacks on foreign currencies," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 331-338, April.
  6. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Working Papers 02-12, Bank of Canada.
  7. Sébastien Vivier-Lirimont, 2004. "Interbanking networks : towards a small financial world ?," Cahiers de la Maison des Sciences Economiques v04046, Université Panthéon-Sorbonne (Paris 1).

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