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Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies

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  • Alexander Zimper

    ()
    (Department of Economics, University of Pretoria)

Abstract

The financial sector of emerging economies in Africa is characterized by a non-competitive banking sector which dominates any direct participation of agents in asset markets. Based on a variant of Diamond and Dybvig's (1983) model of financial intermediation, we formally explain both stylized facts through market inexperience of agents in emerging economies. While experienced agents correctly predict future market clearing equilibrium prices, inexperienced agents are ignorant about future market equilibria. As a consequence, a monopolistic banking sector can exploit these agents because their only outside option is an autarkic investment project.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201334.

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Length: 24 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:pre:wpaper:201334

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Keywords: Emerging Economies; Demand Deposit Contract; Asset Market; Asymmetric Information;

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  1. Olu Ajakaiye & Mthuli Ncube & Jacqueline Macakiage, 0. "Services and Economic Development in Africa: An Overview," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 16(suppl_1), pages -12.
  2. Carmen M. Reinhart & Ioannis Tokatlidis, 2003. "Financial Liberalisation: The African Experience," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 12(Supplemen), pages 53-88, September.
  3. Alexander Zimper, 2013. "Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 14(1), pages 89-107, 02.
  4. Zimper Alexander, 2006. "Assessing the Likelihood of Panic-Based Bank Runs," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 6(1), pages 1-19, December.
  5. Eichberger, Jurgen & Harper, Ian R., 1997. "Financial Economics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198775409, October.
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